The US Federal Reserve on Wednesday took a first step to soften a key rule enacted after the 2008 financial crisis to limit high-risk trading by banks.
The Fed, in one of its first major moves under the leadership of US President Donald Trump’s appointees, said it aimed to improve implementation of the Volcker rule on bank trading to address criticism that the standards were vague and blocked important services to bank clients.
However, the proposed changes were largely panned by progressive lawmakers and groups, who said that the changes could be planting the seeds to another crisis.
The Fed is the first of five agencies that must approve any change.
The Volcker rule, included in the 2010 Dodd-Frank banking law and implemented in 2013, bars banks from engaging in trading with their own funds or from running their own hedge funds to take big bets on investments.
The rule, named for former Fed chair Paul Volcker, prompted large US banks to divest or shut down high-risk, high-return businesses that are not supposed to enjoy the benefit of federal deposit insurance.
However, banks complained that the measure wrongly lumps in safe activities, such as those to hedge against risk or those to provide key liquidity to clients.
Volcker himself suggested that some improvements in the rule were probably merited, but cautioned against going too far to ease restrictions.
“What is critical is that simplification not undermine the core principle at stake — that taxpayer-supported banking groups, of any size, not participate in proprietary trading at odds with the basic public and customers’ interests,” Volcker said in a statement released by the Volcker Alliance, a non-partisan good government group.
“I trust the final rule will strongly maintain that position by, as intended, facilitating its practical application,” he added.
At a Fed board meeting to discuss the reform, officials said that banks would continue to be barred from trading with proprietary funds, but the changes would clarify that some activities are permitted.
Officials involved with Volcker implementation see “many opportunities to simplify and improve it in ways that will allow firms to conduct appropriate activities without undue burden, and without sacrificing safety and standards,” Fed Chairman Jerome Powell said.
“Our goal is to replace overly complex and inefficient requirements with a more streamlined set of requirements,” he said in a statement.
Among the proposed changes, the definition of “trading activity” would be modified to permit more activities, including nixing the automatic classification of assets held less than 60 days as short-term and subject to regulation.
Other changes would provide relief to banks with smaller trading businesses, clarify that certain kinds of market-making activities are allowed and permit foreign trading activities of non-US banks.
The toughest oversight would fall on 18 giant banks with more than US$10 billion in trading assets and liabilities that account for about 95 percent of all trades, US officials said. About half are of these banks are non-US.
However, the proposal drew immediate criticism in some circles.
The changes would result in “more banks betting against, rather than serving, their customers,” the Center for American Progress said. “This will further concentrate the power of the largest banks in the markets at the expense of all other investors and it will put the economy and taxpayers at greater risk of their failure.”
Public Citizen financial policy advocate Bart Naylor said that easing up requirements on smaller banks made sense, but he was generally troubled that policymakers appeared much more fixated on easing bank requirements than on ensuring the bank system is safe.
“We’re concerned that this empowers banks to do what they want to do and that is gamble with funds made cheap and available by taxpayers,” Naylor said in an interview.
The proposal, which was developed in concert with four other agencies, is now subject to a 60-day public comment period.
STEPPING UP: The firm has also asked employees to work in split shifts from this week and to halt all but essential overseas business travel from next month Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has implemented a remote work policy for employees not on production lines in an attempt to curb the spread of COVID-19, the world’s largest contract chipmaker said yesterday. This is the first time in the Hsinchu-based company’s history that it has launched a large-scale remote work policy, joining global technology companies, such as Apple Inc and Google, that encourage employees to work from home. The chipmaker has also asked employees to work in split shifts from this week, it said. As the number of virus infections continues to climb worldwide, TSMC has urged employees to halt unnecessary
A two-hour drive south of Amsterdam in Veldhoven, workers decked out head-to-toe in protective gear toil in vast assembly halls. Before entering the inner sanctuary of the facilities, they meticulously layer on masks, gloves and special socks. A single speck of dust or a hair can have devastating effects on production. The result of all this painstaking process is an environment that is 10,000 times more purified than outside. As COVID-19 grips the world, it might just be the safest place to work right now. The teams belong to ASML Holding NV, which holds a de facto monopoly on the industry of
DBS Bank Ltd yesterday hacked its GDP growth forecast for Taiwan this year to 0.9 percent, down from its estimate of 2.3 percent two months earlier, in light of the COVID-19 pandemic and increasing financial market volatility. The bank’s latest forecast was even lower than London-based IHS Markit Ltd’s estimate of 1 percent, while other research institutes’ projections range from 1.6 percent to 2.6 percent. Taiwan’s economic momentum is being negatively affected by the pandemic, DBS said. The rapid spread of the disease from Asia to Europe and the US has dampened the bank’s previous expectation of a “V-shaped” global rebound in the
DOWNSIDE RISKS: Firms have a ‘very low’ chance of boosting investment returns in the next two years, making it hard for them to improve their capitalization, an analyst said Taiwanese life insurers wanting to improve their capital structure face strong headwinds this year, given prolonged low interest rates and economic impacts derived from trade protectionism and the COVID-19 pandemic, Taiwan Ratings Corp (中華信評) said on Friday. The local life insurance sector also still has high asset risks and such risks are susceptible to market volatility, the local arm of Standard & Poor’s Global Ratings said. Since last year, major financial holding companies — including CTBC Financial Holding Co (中信金控), Cathay Financial Holding Co (國泰金控) and Shin Kong Financial Holding Co (新光金控) — have announced plans to raise fresh capital to