Tougher Restrictions for Banks Under 'Volcker Rule'

According to The Wall Street Journal, “federal regulators are expected next week to approve a toughened version of the so-called Volcker rule, ending years of wrangling over the controversial provision of the Dodd-Frank law and opening a new phase of stricter oversight for Wall Street.”

“The 11th-hour talks are expected to result in tougher restrictions on hedging—beyond what regulators had agreed to just a few weeks ago.”

The tougher restrictions are endorsed by CFTC Chairman, Gary Gensler, and SEC Commissioner, Kara Stein, who argued   that “the rule gave banks too much leeway in how they were allowed to tie hedges to other positions at the bank.”

“The worry: Banks could enter trades loosely tied to those positions that were actually designed to post a profit, giving them a back-end way to continue engaging in proprietary trading. To reduce that risk, the two officials pushed for requirements that hedges are specifically tied to the risk of losses.”

“The rule is expected to require banks to tie hedges to specific risks, such as interest-rate, currency or foreign-exchange risk.”

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