79–006 

115TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 115–621 

VOLCKER RULE REGULATORY HARMONIZATION ACT 

APRIL 5, 2018.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. HENSARLING, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

together with 

MINORITY VIEWS 

[To accompany H.R. 4790] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 4790) to amend the Volcker rule to give the Board of Governors of the Federal Reserve System sole rulemaking authority, to 

exclude community banks from the requirements of the Volcker 

rule, and for other purposes, having considered the same, report favorably thereon with an amendment and recommend that the bill 

as amended do pass. 

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE. 

This Act may be cited as the ‘‘Volcker Rule Regulatory Harmonization Act’’. 

SEC. 2. RULEMAKING AUTHORITY UNDER THE VOLCKER RULE. 

(a) IN GENERAL.—Paragraph (2) of section 13(b) of the Bank Holding Company 

Act of 1956 (12 U.S.C. 1851(b)(2)) is amended to read as follows: 

‘‘(2) RULEMAKING.— 

‘‘(A) IN GENERAL.—The Board may, as appropriate, consult with the 

Comptroller of the Currency, the Federal Deposit Insurance Corporation, 

the Securities and Exchange Commission, or the Commodity Futures Trading Commission to adopt rules or guidance to carry out this section, as provided in subparagraph (B). 

‘‘(B) RULEMAKING REQUIREMENTS.—In adopting a rule or guidance under 

subparagraph (A), the Board— 

‘‘(i) shall consider the findings of the report required in paragraph (1) 

and, as appropriate, subsequent reports; 


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‘‘(ii) shall assure, to the extent possible, that such rule or guidance 

provide for consistent application and implementation of the applicable 

provisions of this section to avoid providing advantages or imposing disadvantages to the companies affected by this subsection and to protect 

the safety and soundness of banking entities and nonbank financial 

companies supervised by the Board; and 

‘‘(iii) shall include requirements to ensure compliance with this section, such as requirements regarding internal controls and recordkeeping. 

‘‘(C) AUTHORITY.—The Board shall have sole authority to issue and 

amend rules under this section after the date of the enactment of this paragraph. 

‘‘(D) CONFORMING AUTHORITY.— 

‘‘(i) CONTINUITY OF REGULATIONS.—Any rules or guidance issued 

under this section prior to the date of enactment of this paragraph 

shall continue in effect until the Board issues a successor rule or guidance, or amends such rule or guidance, pursuant to subparagraph (C). 

‘‘(ii) APPLICABLE GUIDANCE.—In performing examinations or other supervisory duties, the appropriate Federal banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading 

Commission, as appropriate, shall update any applicable policies and 

procedures to ensure that such policies and procedures are consistent 

(to the extent practicable) with any rules or guidance issued pursuant 

to subparagraph (C).’’. 

(b) CONFORMING AMENDMENTS.—Section 13 of the Bank Holding Company Act of 

1956 (12 U.S.C. 1851) is amended— 

(1) by striking ‘‘the appropriate Federal banking agencies, the Securities and 

Exchange Commission, and the Commodity Futures Trading Commission,’’ each 

place it appears and inserting ‘‘the Board’’; 

(2) by striking ‘‘appropriate Federal banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission’’ each 

place it appears and inserting ‘‘Board’’; 

(3) in subsection (c)(5), by striking ‘‘Notwithstanding paragraph (2)’’ and all 

that follows through ‘‘provided in subsection (b)(2),’’ and inserting ‘‘The Board 

shall have the authority’’; and 

(4) in subsection (d)(1)— 

(A) in subparagraph (F)(ii)— 

(i) by striking ‘‘the appropriate Federal banking agencies’’’ and inserting ‘‘the Board’’; and 

(ii) by striking ‘‘have not jointly’’ and inserting ‘‘has not’’; and 

(B) in subparagraph (G)(viii), by striking ‘‘appropriate Federal banking 

agencies, the Securities and Exchange Commission, or the Commodity Futures Trading Commission,’’ and inserting ‘‘Board,’’. 

SEC. 3. ENFORCEMENT; ANTI–EVASION. 

(a) IN GENERAL.—Subsection (e) of section 13 of the Bank Holding Company Act 

of 1956 (12 U.S.C. 1851(e)) is amended to read as follows: 

‘‘(e) ENFORCEMENT; ANTI-EVASION.— 

‘‘(1) APPROPRIATE FEDERAL BANKING AGENCY.—Notwithstanding any other 

provision of law except for any rules or guidance issued under subsection (b)(2), 

whenever the appropriate Federal banking agency has reasonable cause to believe that a banking entity or nonbank financial company supervised by the 

Board has made an investment or engaged in an activity in a manner that either violates the restrictions under this section, or that functions as an evasion 

of the requirements of this section (including through an abuse of any permitted 

activity), such appropriate Federal banking agency shall order, after due notice 

and opportunity for hearing, the banking entity or nonbank financial company 

supervised by the Board to terminate the activity and, as relevant, dispose of 

the investment. 

‘‘(2) SECURITIES AND EXCHANGE COMMISSION AND COMMODITY FUTURES TRADING COMMISSION.— 

‘‘(A) IN GENERAL.—Notwithstanding any other provision of law except for 

any rules or guidance issued under subsection (b)(2), whenever the Securities and Exchange Commission or the Commodity Futures Trading Commission, as appropriate, has reasonable cause to believe that a covered 

nonbank financial company for which the respective agency is the primary 

Federal regulator has made an investment or engaged in an activity in a 

manner that either violates the restrictions under this section, or that functions as an evasion of the requirements of this section (including through 


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an abuse of any permitted activity), the Securities and Exchange Commission or the Commodity Futures Trading Commission, as appropriate, shall 

order, after due notice and opportunity for hearing, the covered nonbank financial company to terminate the activity and, as relevant, dispose of the 

investment. 

‘‘(B) COVERED NONBANK FINANCIAL COMPANY DEFINED.—In this paragraph, the term ‘covered nonbank financial company’ means a nonbank financial company (as defined in section 102 of the Financial Stability Act 

of 2010) supervised by the Securities and Exchange Commission or the 

Commodity Futures Trading Commission, as appropriate.’’. 

(b) RULE OF CONSTRUCTION.—Nothing in this section shall be construed to abrogate, reduce, or eliminate the backup authority of the Federal Deposit Insurance 

Corporation authority under the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (12 U.S.C. 5301 et seq.), the Federal Deposit Insurance Act (12 

U.S.C. 1811), or Federal Deposit Insurance Corporation Improvement Act of 1991. 

SEC. 4. EXCLUSION OF COMMUNITY BANKS FROM VOLCKER RULE. 

Section 13(h)(1) of the Bank Holding Company Act of 1956 (12 U.S.C. 1851(h)(1)) 

is amended— 

(1) in subparagraph (D), by redesignating clauses (i) and (ii) as subclauses (I) 

and (II), respectively, and adjusting the margins accordingly; 

(2) by redesignating subparagraphs (A), (B), (C), and (D) as clauses (i), (ii), 

(iii), and (iv), respectively, and adjusting the margins accordingly; 

(3) in the matter preceding clause (i), as so redesignated, in the second sentence, by striking ‘‘institution that functions solely in a trust or fiduciary capacity, if—’’ and inserting the following: ‘‘institution— 

‘‘(A) that functions solely in a trust or fiduciary capacity, if—’’; 

(4) in clause (iv)(II), as so redesignated, by striking the period at the end and 

inserting ‘‘; or’’; and 

(5) by adding at the end the following: 

‘‘(B) that does not have and is not controlled by a company that has— ‘‘(i) more than $10,000,000,000 in total consolidated assets; and 

‘‘(ii) total trading assets and trading liabilities, as reported on the 

most recent applicable regulatory filing filed by the institution, that are 

more than 5 percent of total consolidated assets.’’. 

PURPOSE AND SUMMARY

On January 12, 2018, Representative French Hill introduced 

H.R. 4790, the ‘‘Volcker Rule Regulatory Harmonization Act,’’ to 

streamline the regulatory authority established by Section 619 of 

the Dodd-Frank Act, also known as the Volcker Rule, and provide 

community banks under $10 billion with an exclusion related to 

the Volcker Rule compliance obligations. 

More specifically, H.R. 4790, as modified by an amendment in 

the nature of a substitute offered by Representative Bill Foster and 

accepted by Representative Hill, achieves these objectives by 

amending Section 619 of the Dodd-Frank Act such that the Board 

of Governors of the Federal Reserve (Federal Reserve) has exclusive rulemaking authority and the primary Federal regulator for 

each entity required to comply with the rule has sole examination 

and enforcement authority over that entity. The legislation also excludes community banks from Volcker Rule compliance if they do 

not have and are not controlled by an entity with $10 billion or 

more in total consolidated assets and total trading assets and trading liabilities that are more than five percent of total consolidated 

assets. 

BACKGROUND AND NEED FOR LEGISLATION

The goal of H.R. 4790 is to enhance regulatory clarity and certainty as well as reduce burdensome and duplicative compliance 

costs associated with Section 619 of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (Pub. L. No. 111–203)—popuVerDate Sep 11 2014 02:17 Apr 06, 2018 Jkt 079006 PO 00000 Frm 00003 Fmt 6659 Sfmt 6602 E:\HR\OC\HR621.XXX HR621

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larly known as the ‘‘Volcker Rule’’ after its chief proponent, former 

Federal Reserve Board Chairman Paul Volcker. 

The Volcker Rule generally prohibits U.S. bank holding companies and their affiliates from engaging in ‘‘proprietary trading’’ and 

from sponsoring hedge funds and private equity funds. In its design and implementation, however, the Volcker Rule far overshot 

the mark and has created an extraordinarily complex and burdensome compliance regime due to several factors, including: the scope 

of firms subject to the rule’s prohibitions, the number of regulators 

charged with enforcement, ambiguous rules and definitions, and 

the extensive compliance programs that the rule requires firms to 

adopt. The result has chilled market-making functions necessary to 

ensure a healthy level of market liquidity and hedging activity to 

mitigate risk. 

Banks play an extremely important role in U.S. financial markets by buying and selling securities on behalf of their customers, 

also known as ‘‘market making.’’ Market making is crucial to the 

modern financial system, in which companies raise funds by selling 

equity, bonds, notes, and commercial paper. By acting as intermediaries between buyers and sellers, banks hold prices down, 

maintain tight trading spreads and facilitate continuous markets. 

Without market makers, buyers and sellers would have to find 

each other, making transactions both more costly and less frequent. 

Corporations that issue debt to pay for capital investments, invest 

in research and development, meet payroll, or hire new workers depend on market makers to hold down the cost of credit. 

Market makers also hold down the cost of credit for consumers: 

credit card debt and mortgages are often financed by being bundled 

into securities, which are then bought and sold in the capital markets. By acting as a market maker for these kinds of securities, 

banks make it cheaper and easier for consumers to use their credit 

cards or obtain mortgages. Savers—through large pension funds, 

mutual funds, and insurance companies—also depend on the willingness of market makers to buy and sell securities. These institutional investors cannot ‘‘save’’ their cash at banks as small depositors do, and they must be able to quickly meet calls for cash from 

their investors. The market-making activities of banks permit these 

firms to ‘‘save’’ cash by purchasing financial assets and ‘‘withdraw’’ 

cash by selling those assets. This ability to ‘‘save’’ and ‘‘withdraw’’ 

in turn benefits the small investors that are the clients of these financial firms. 

The drafters of the Volcker Rule acknowledged the key role that 

market-making plays in ensuring deep, liquid capital markets, and 

as a result attempted to exempt market-making activities from prohibition on proprietary trading. But the final rules implementing 

the Volcker Rule make it difficult for banks to buy or sell securities 

for their own inventory in anticipation of client demand because 

managing inventory can look like ‘‘proprietary trading’’—potentially 

subjecting the firm to regulatory sanctions and monetary penalties. 

The inevitable result of this uncertainty is a reduction of liquidity 

in crucial market sectors—including the corporate debt market— 

which has the perverse effect of making the financial system less 

resilient and more vulnerable to destabilizing events like the one 

that the Dodd-Frank was supposed to prevent. 


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The economic consequences of a sharp reduction in market liquidity—where market participants lose the ability to buy or sell 

securities quickly at a given price—cannot be overstated. In addition to higher costs for corporations and consumers, the value of assets held by large pension funds, mutual funds, and insurance companies—assets which represent the savings of millions of small investors—will decline as those assets become harder to trade, making those investors worse off. The lack of liquidity also means that 

financial markets have less capacity to deal with shocks and will 

be more likely to seize up in a panic, just as they did in the 2008 

financial crisis. Reduced liquidity in the bond markets amplifies 

volatility when prices begin to decline. Rather than making markets more stable, then, the new regulations have made them more 

brittle. 

H.R. 4790 represents an important first step to address the unintended and negative consequences of the Volcker Rule by streamlining the rulemaking authority with the Federal Reserve, consolidating examination and enforcement authority into a single, primary regulator, and excluding from the rule community banks 

under $10 billion in consolidated assets and with trading assets 

and liability less than five percent. Outside of full repeal of the 

Volcker Rule, these measures are important and sensible changes 

to ensure much needed regulatory clarity and to reduce burdensome compliance costs. 

A central problem with the Volcker Rule was its design and implementation. The Dodd-Frank Act unartfully conferred responsibility for both implementing and enforcing the Volcker Rule on five 

different federal financial regulators: the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission 

(CFTC). Not surprisingly, given their disparate statutory mandates 

and regulatory missions, these agencies struggled to achieve consensus on a regulation to implement the Volcker Rule’s vague legislative language. On December 10, 2013, the agencies voted to approve a final regulation implementing the Volcker Rule. The final 

rule totals 932 pages and 297,000 words. 

The same five agencies that drafted the Volcker Rule are also responsible now for its enforcement. Most bank holding companies 

will likely be overseen by at least two of those regulators, and some 

may be overseen by as many as four. Bank holding companies that 

have a broker-dealer or a futures commission merchant will also be 

subject to examinations by self-regulatory organizations for compliance with the SEC’s and CFTC’s rules. 

These five regulators have disparate mandates and regulatory 

philosophies. Bank regulators have traditionally focused on the 

safety and soundness of the institutions they supervise, whereas 

market regulators like the SEC and CFTC have emphasized disclosure, conduct, investor protection and market functionality and operations. These divergent approaches mean that regulated institutions may well face conflicting guidance and mandates from the 

regulators charged with implementing the Volcker Rule. As a result of these divergent mandates among the regulators, financial 

institutions may be asked to comply with conflicting interpretations 

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flicting interpretations and regulatory divergence are even more 

likely to happen because the final rule contains no provisions requiring the regulators to coordinate oversight and enforcement, or 

to harmonize the different approaches that bank regulators and 

market regulators take towards compliance. 

In response to congressional concerns about the lack of a harmonized enforcement approach, the five agencies tasked with implementing the Volcker Rule announced in February 2014 that 

they had formed an interagency working group that will meet regularly to discuss implementation of the final Volcker Rule. Some 

four years later, the working group has not yet created a dedicated 

and public website at which institutions affected by the Volcker 

Rule can review regulatory guidance, examination protocols, or interpretations. 

Regardless, the current regulatory framework results in fragmentation and confusion for institutions subject to the rule. The 

CFTC has jurisdiction of futures commission merchants and swap 

dealers; the SEC over brokers, dealers, investment companies and 

advisers, and security-based swap dealers; the OCC over national 

banks; the FDIC over insured nonmember state banks; and the 

Federal Reserve over bank holding companies and their subsidiaries not otherwise regulated by other regulators, state member 

banks, and foreign banking organizations. As indicated, in some 

cases multiple agencies have responsibility for a single banking entity—i.e., a national bank that is a swap dealer, where a single 

trade and related hedge could be booked at two different entities, 

each of which is regulated by a different agency. This fragmentation of responsibility to determine how to apply the Volcker rule to 

a particular banking entity or trading desk is inefficient for both 

the banks and the regulators. 

The regulators’ existing approach to coordination has not worked 

and, as a result, banks have had difficulty obtaining clear, consistent guidance. Even former Federal Reserve Governor Daniel 

Tarullo noted in his farewell remarks, ‘‘Efforts to achieve consistency in treatment across agencies have been both time-consuming 

and, at times, unsuccessful.’’ The Committee has learned that at 

least one regulated entity who attempted to schedule a meeting 

with all five regulators in the same room to describe the entity’s 

compliance program and solicit feedback from the regulators; but 

the regulators advised the entity that if a joint meeting were to 

happen, some of the agencies would be unable to provide feedback 

since the regulators do not have an inter-agency information-sharing agreement which would eliminate protections that otherwise 

exist for bank-to-examiner conversations. The Committee also is 

aware of instances in which the prudential regulators (jointly) and 

the SEC (separately) have undertaken duplicative, simultaneous 

examinations of the same trading desks. Further, at least one regulated firm has received conflicting instructions regarding trading 

desk size from multiple examining agencies. 

H.R. 4790 addresses the Volcker Rule’s fragmented regulatory 

structure by concentrating rulemaking authority in a single agency—the Federal Reserve—and giving an entity’s primary federal 

regulator sole enforcement and examination authority as it relates 

to the Volcker Rule. During their respective testimonies before the 

Financial Services Committee in 2018, both Treasury Secretary 


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Steven Mnuchin and Federal Reserve Chairman Jay Powell stated 

that they would support amending the Volcker Rule in a manner 

that consolidates rulemaking authority with the Federal Reserve. 

In performing its rulemaking responsibilities, H.R. 4790 envisions a revised regulatory structure whereby the Federal Reserve 

may consult with the OCC, FDIC, SEC, and CFTC. The Committee 

also expects that the other four agencies will consistently apply and 

implement the Federal Reserve’s rules or guidance during examinations and enforcement actions. Consistent with these requirements, the Federal Reserve may want to consider a method and develop a process to ensure that if any agency involved with enforcing 

the Volcker Rule becomes aware of an issue that may best be addressed by an amendment to an existing rule or promulgation of 

a new rule that issue can be reported to and, as appropriate, considered by the Federal Reserve. 

Consistent with recommendations from the Department of the 

Treasury, in addition to streamlining the regulatory implementation of the Volcker Rule, H.R. 4790 also exempts banking organizations that do not have and are not controlled by an entity with $10 

billion or more in total consolidated assets and total trading assets 

and trading liability that are more than 5 percent of total consolidated assets. S. 2155, the Economic Growth, Regulatory Relief and 

Consumer Protection Act, includes a similar provision to exempt 

banks with under $10 billion in assets. The Senate passed S. 2155 

by a roll-call vote of 67-to-31 on March 14, 2018. 

In light of the disproportionate compliance costs community 

banks face as a result of the Volcker Rule, a bright-line exemption 

like this makes sense because most small banks do not even engage in proprietary trading or invest in or sponsor private equity 

or hedge funds. While the Volcker Rule regulations purportedly 

have provided banking entities with under $10 billion in assets 

with relief from the rule’s compliance program requirements, these 

banks still must expend considerable resources to ensure that their 

activities do not constitute prohibited proprietary trading. Because 

of the Volcker Rule’s complexity as implemented, even those community banks that do not conduct any proprietary trading have 

nonetheless had to incur large costs simply proving what the regulators already know—that they are not engaged in activities covered by the rule. For instance, community banks must review their 

investment portfolios to determine whether they are purchasing or 

selling any securities for a ‘‘trading account’’—a term that can be 

defined by the Volcker Rule under any one of three different tests, 

one of which requires the bank to divine the intent underlying each 

transaction. Community banks also must perform due diligence to 

determine whether each security in their portfolios qualifies for an 

exemption from the rule. Thus, the community bank exemption 

here will remove one more unnecessary regulatory burden inflicted 

on community financial institutions by the Dodd-Frank Act. 

HEARINGS

The subcommittee on Capital Markets, Securities, and Investment held hearings examining matters relating to H.R. 4790 on 

March 29, 2017, April 26, 2017, and April 28, 2017. 


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COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

March 21, 2018 and ordered H.R. 4790 to be reported favorably to 

the House, as amended by a recorded vote of 50 yeas to 10 nays 

(recorded vote no. FC–171), a quorum being present. Before the 

motion to report was offered, the Committee adopted an amendment in the nature of a substitute offered by Mr. Foster by voice 

vote. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. The sole recorded 

vote was on a motion by Chairman Hensarling to report the bill favorably to the House as amended. The motion was agreed to by a 

recorded vote of 50 yeas to 10 nays (Record vote no. FC–171), a 

quorum being present. 


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COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the findings and recommendations of the Committee based on oversight activities under clause 2(b)(1) of rule X 

of the Rules of the House of Representatives, are incorporated in 

the descriptive portions of this report. 

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee states that H.R. 4790, as 

amended, will provide regulatory clarity and efficiencies and eliminate burdensome costs to community banks by amending the 

Volcker Rule to grant the Federal Reserve the sole rulemaking authority, provide an entity’s primary Federal regulator with sole examination and enforcement authority, and exempt community 

banks if they do not have and are not controlled by an entity with 

$10 billion or more in total consolidated assets and total trading 

assets and trading liabilities that are more than 5 percent of total 

consolidated assets. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE ESTIMATES

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, Washington, DC, April 4, 2018. 

Hon. JEB HENSARLING, 

Chairman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 4790, the Volcker Rule 

Regulatory Harmonization Act. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Nathaniel Frentz. 

Sincerely, 

MARK P. HADLEY

(For Keith Hall, Director). 

Enclosure. 


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H.R. 4790—The Volcker Rule Regulatory Harmonization Act 

The Volcker Rule restricts financial institutions insured by the 

Federal Deposit Insurance Corporation from engaging in certain 

proprietary trading of securities, derivatives, commodity futures, 

and options on those instruments. With some exceptions, the rule 

also prohibits those institutions from owning, sponsoring, or having 

certain relationships with hedge funds and private equity funds. 

Rulemaking responsibilities under the Volcker Rule are shared 

among a group of financial regulatory institutions, including the 

Board of Governors of the Federal Reserve System. 

H.R. 4790 would amend current law to grant the Federal Reserve’s Board of Governors sole authority for that rulemaking. The 

bill also would exclude community banks those with less than $10 

billion in assets and that meet certain other criteria from the 

Volcker Rule’s requirements. 

CBO estimates that the change would not significantly affect the 

budgets of any of the federal regulators because final rules implementing the Volcker Rule have already been adopted. Using information from affected agencies, CBO estimates that any future costs 

to amend rules would be insignificant. CBO also estimates that the 

exemption of community banks would not significantly affect the 

workload or other administrative costs of the relevant regulators. 

Although CBO estimates that there is some probability of civil 

penalties’ being collected over the 2018–2027 period for violations 

of the Volcker Rule, the bill’s exemption for community banks is 

unlikely to significantly affect the amount of such penalties. CBO 

estimates that those penalties would be small if they are assessed 

at all for such banks. 

Because enacting the bill would affect direct spending and revenues, pay-as-you-go procedures apply. However, CBO estimates 

that any net changes in direct spending or revenues would not be 

significant. 

CBO estimates that enacting H.R. 4790 would not significantly 

increase net direct spending or on-budget deficits in any of the four 

consecutive 10-year periods beginning in 2028. 

H.R. 4790 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act. 

The CBO staff contact for this estimate is Nathaniel Frentz. The 

estimate was approved by John McClelland, Assistant Director for 

Tax Analysis, and Theresa Gullo, Assistant Director for Budget 

Analysis. 

FEDERAL MANDATES STATEMENT

This information is provided in accordance with section 423 of 

the Unfunded Mandates Reform Act of 1995. 

The Committee has determined that the bill does not contain 

Federal mandates on the private sector. The Committee has determined that the bill does not impose a Federal intergovernmental 

mandate on State, local, or tribal governments. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 


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APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of the section 102(b)(3) of the 

Congressional Accountability Act. 

EARMARK IDENTIFICATION

With respect to clause 9 of rule XXI of the Rules of the House 

of Representatives, the Committee has carefully reviewed the provisions of the bill and states that the provisions of the bill do not 

contain any congressional earmarks, limited tax benefits, or limited 

tariff benefits within the meaning of the rule. 

DUPLICATION OF FEDERAL PROGRAMS

In compliance with clause 3(c)(5) of rule XIII of the Rules of the 

House of Representatives, the Committee states that no provision 

of the bill establishes or reauthorizes: (1) a program of the Federal 

Government known to be duplicative of another Federal program; 

(2) a program included in any report from the Government Accountability Office to Congress pursuant to section 21 of Public 

Law 111–139; or (3) a program related to a program identified in 

the most recent Catalog of Federal Domestic Assistance, published 

pursuant to the Federal Program Information Act (Pub. L. No. 95– 

220, as amended by Pub. L. No. 98–169). 

DISCLOSURE OF DIRECTED RULEMAKING

Pursuant to section 3(i) of H. Res. 5, (115th Congress), the following statement is made concerning directed rulemakings: The 

Committee estimates that the bill requires no directed rulemakings 

within the meaning of such section. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This section cites H.R. 4790, as ‘‘The Volcker Rule Regulatory 

Harmonization Act’’. 

Section 2. Rulemaking authority under the Volcker Rule 

This section amends Section 13(b) of the Bank Holding Company 

Act of 1956, to give sole rulemaking authority to the Federal Reserve. In doing so, it provides that the Board may, as appropriate, 

consult with the OCC, FDIC, SEC, and CFTC to adopt rules or 

guidance and provides certain rulemaking requirements that the 

Federal Reserve shall perform as part of its rulemaking function. 

Additionally, this section clarifies that any rules or guidance that 

were issued prior to enactment of this Act shall remain in effect 

until the Federal Reserve issues a successor rule or guidance or 

amends such rule or guidance. The section further makes clear that 

the Federal Reserve, OCC, FDIC, SEC, and CFTC shall update any 

applicable policies and procedures to ensure that such are consistent with any rules or guidance issued by the Federal Reserve. 

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ments consistent with providing the Federal Reserve sole rulemaking authority. 

Section 3. Enforcement; anti-evasion 

This section amends Subsection (e) of section 13 of the Bank 

Holding Company Act of 1956, to give the appropriate Federal 

banking agency the sole examination and enforcement authority 

over the respective banking entity under its supervision or 

nonbank financial company under supervision by the Federal Reserve. Similarly, this section also provides the sole examination 

and enforcement authority to the SEC and CFTC over a covered 

nonbank financial company for which the respective agency is the 

primary Federal regulator. 

Section 4. Exclusion of community banks from Volcker Rule 

This section amends Section 13(h)(1) of the Bank Holding Company Act of 1956, to exclude community banks that do not have 

and are not controlled by a company that has total consolidated assets of $10,000,000,000 and total trading assets and trading liabilities that are more than 5 percent of total consolidated assets. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

and existing law in which no change is proposed is shown in 

roman): 

BANK HOLDING COMPANY ACT OF 1956 

* * * * * * * 

SEC. 13. PROHIBITIONS ON PROPRIETARY TRADING AND CERTAIN RELATIONSHIPS WITH HEDGE FUNDS AND PRIVATE EQUITY 

FUNDS. 

(a) IN GENERAL.— 

(1) PROHIBITION.—Unless otherwise provided in this section, 

a banking entity shall not— 

(A) engage in proprietary trading; or 

(B) acquire or retain any equity, partnership, or other 

ownership interest in or sponsor a hedge fund or a private 

equity fund. 

(2) NONBANK FINANCIAL COMPANIES SUPERVISED BY THE

BOARD.—Any nonbank financial company supervised by the 

Board that engages in proprietary trading or takes or retains 

any equity, partnership, or other ownership interest in or sponsors a hedge fund or a private equity fund shall be subject, by 

rule, as provided in subsection (b)(2), to additional capital requirements for and additional quantitative limits with regards 

to such proprietary trading and taking or retaining any equity, 

partnership, or other ownership interest in or sponsorship of a 

hedge fund or a private equity fund, except that permitted activities as described in subsection (d) shall not be subject to the 

additional capital and additional quantitative limits except as 


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14 

provided in subsection (d)(3), as if the nonbank financial company supervised by the Board were a banking entity. 

(b) STUDY AND RULEMAKING.— (1) STUDY.—Not later than 6 months after the date of enactment of this section, the Financial Stability Oversight Council 

shall study and make recommendations on implementing the 

provisions of this section so as to— 

(A) promote and enhance the safety and soundness of 

banking entities; 

(B) protect taxpayers and consumers and enhance financial stability by minimizing the risk that insured depository institutions and the affiliates of insured depository institutions will engage in unsafe and unsound activities; 

(C) limit the inappropriate transfer of Federal subsidies 

from institutions that benefit from deposit insurance and 

liquidity facilities of the Federal Government to unregulated entities; 

(D) reduce conflicts of interest between the self-interest 

of banking entities and nonbank financial companies supervised by the Board, and the interests of the customers 

of such entities and companies; 

(E) limit activities that have caused undue risk or loss 

in banking entities and nonbank financial companies supervised by the Board, or that might reasonably be expected to create undue risk or loss in such banking entities 

and nonbank financial companies supervised by the Board; 

(F) appropriately accommodate the business of insurance 

within an insurance company, subject to regulation in accordance with the relevant insurance company investment 

laws, while protecting the safety and soundness of any 

banking entity with which such insurance company is affiliated and of the United States financial system; and 

(G) appropriately time the divestiture of illiquid assets 

that are affected by the implementation of the prohibitions 

under subsection (a). 

ø(2) RULEMAKING.— ø(A) IN GENERAL.—Unless otherwise provided in this 

section, not later than 9 months after the completion of the 

study under paragraph (1), the appropriate Federal banking agencies, the Securities and Exchange Commission, 

and the Commodity Futures Trading Commission, shall 

consider the findings of the study under paragraph (1) and 

adopt rules to carry out this section, as provided in subparagraph (B). 

ø(B) COORDINATED RULEMAKING.— 

ø(i) REGULATORY AUTHORITY.—The regulations 

issued under this paragraph shall be issued by— 

ø(I) the appropriate Federal banking agencies, 

jointly, with respect to insured depository institutions; 

ø(II) the Board, with respect to any company 

that controls an insured depository institution, or 

that is treated as a bank holding company for purposes of section 8 of the International Banking 

Act, any nonbank financial company supervised by 


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15 

the Board, and any subsidiary of any of the foregoing (other than a subsidiary for which an agency described in subclause (I), (III), or (IV) is the 

primary financial regulatory agency); 

ø(III) the Commodity Futures Trading Commission, with respect to any entity for which the 

Commodity Futures Trading Commission is the 

primary financial regulatory agency, as defined in 

section 2 of the Dodd-Frank Wall Street Reform 

and Consumer Protection Act; and 

ø(IV) the Securities and Exchange Commission, 

with respect to any entity for which the Securities 

and Exchange Commission is the primary financial regulatory agency, as defined in section 2 of 

the Dodd-Frank Wall Street Reform and Consumer Protection Act. 

ø(ii) COORDINATION, CONSISTENCY, AND COM- PARABILITY.—In developing and issuing regulations 

pursuant to this section, the appropriate Federal 

banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission shall consult and coordinate with each other, 

as appropriate, for the purposes of assuring, to the extent possible, that such regulations are comparable 

and provide for consistent application and implementation of the applicable provisions of this section to 

avoid providing advantages or imposing disadvantages 

to the companies affected by this subsection and to 

protect the safety and soundness of banking entities 

and nonbank financial companies supervised by the 

Board. 

ø(iii) COUNCIL ROLE.—The Chairperson of the Financial Stability Oversight Council shall be responsible 

for coordination of the regulations issued under this 

section.¿ 

(2) RULEMAKING.— (A) IN GENERAL.—The Board may, as appropriate, consult with the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange 

Commission, or the Commodity Futures Trading Commission to adopt rules or guidance to carry out this section, as 

provided in subparagraph (B). 

(B) RULEMAKING REQUIREMENTS.—In adopting a rule or 

guidance under subparagraph (A), the Board— 

(i) shall consider the findings of the report required 

in paragraph (1) and, as appropriate, subsequent reports; 

(ii) shall assure, to the extent possible, that such rule 

or guidance provide for consistent application and implementation of the applicable provisions of this section 

to avoid providing advantages or imposing disadvantages to the companies affected by this subsection and 

to protect the safety and soundness of banking entities 

and nonbank financial companies supervised by the 

Board; and 


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16 

(iii) shall include requirements to ensure compliance 

with this section, such as requirements regarding internal controls and recordkeeping. 

(C) AUTHORITY.—The Board shall have sole authority to 

issue and amend rules under this section after the date of 

the enactment of this paragraph. 

(D) CONFORMING AUTHORITY.— 

(i) CONTINUITY OF REGULATIONS.—Any rules or guidance issued under this section prior to the date of enactment of this paragraph shall continue in effect until 

the Board issues a successor rule or guidance, or 

amends such rule or guidance, pursuant to subparagraph (C). 

(ii) APPLICABLE GUIDANCE.—In performing examinations or other supervisory duties, the appropriate Federal banking agencies, the Securities and Exchange 

Commission, and the Commodity Futures Trading 

Commission, as appropriate, shall update any applicable policies and procedures to ensure that such policies 

and procedures are consistent (to the extent practicable) 

with any rules or guidance issued pursuant to subparagraph (C). 

(c) EFFECTIVE DATE.— 

(1) IN GENERAL.—Except as provided in paragraphs (2) and 

(3), this section shall take effect on the earlier of— 

(A) 12 months after the date of the issuance of final 

rules under subsection (b); or 

(B) 2 years after the date of enactment of this section. 

(2) CONFORMANCE PERIOD FOR DIVESTITURE.—A banking entity or nonbank financial company supervised by the Board shall 

bring its activities and investments into compliance with the 

requirements of this section not later than 2 years after the 

date on which the requirements become effective pursuant to 

this section or 2 years after the date on which the entity or 

company becomes a nonbank financial company supervised by 

the Board. The Board may, by rule or order, extend this twoyear period for not more than one year at a time, if, in the 

judgment of the Board, such an extension is consistent with 

the purposes of this section and would not be detrimental to 

the public interest. The extensions made by the Board under 

the preceding sentence may not exceed an aggregate of 3 years. 

(3) EXTENDED TRANSITION FOR ILLIQUID FUNDS.— 

(A) APPLICATION.—The Board may, upon the application 

of a banking entity, extend the period during which the 

banking entity, to the extent necessary to fulfill a contractual obligation that was in effect on May 1, 2010, may take 

or retain its equity, partnership, or other ownership interest in, or otherwise provide additional capital to, an illiquid fund. 

(B) TIME LIMIT ON APPROVAL.—The Board may grant 1 

extension under subparagraph (A), which may not exceed 

5 years. 

(4) DIVESTITURE REQUIRED.—Except as otherwise provided in 

subsection (d)(1)(G), a banking entity may not engage in any 


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17 

activity prohibited under subsection (a)(1)(B) after the earlier 

of— 

(A) the date on which the contractual obligation to invest 

in the illiquid fund terminates; and 

(B) the date on which any extensions granted by the 

Board under paragraph (3) expire. 

(5) ADDITIONAL CAPITAL DURING TRANSITION PERIOD.—øNotwithstanding paragraph (2), on the date on which the rules are 

issued under subsection (b)(2), the appropriate Federal banking agencies, the Securities and Exchange Commission, and 

the Commodity Futures Trading Commission shall issue rules, 

as provided in subsection (b)(2),¿ The Board shall have the authority to impose additional capital requirements, and any 

other restrictions, as appropriate, on any equity, partnership, 

or ownership interest in or sponsorship of a hedge fund or private equity fund by a banking entity. 

(6) SPECIAL RULEMAKING.—Not later than 6 months after the 

date of enactment of this section, the Board shall issues rules 

to implement paragraphs (2) and (3). 

(d) PERMITTED ACTIVITIES.— 

(1) IN GENERAL.—Notwithstanding the restrictions under 

subsection (a), to the extent permitted by any other provision 

of Federal or State law, and subject to the limitations under 

paragraph (2) and any restrictions or limitations that øthe appropriate Federal banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading 

Commission,¿ the Board may determine, the following activities (in this section referred to as ‘‘permitted activities’’’) are 

permitted: 

(A) The purchase, sale, acquisition, or disposition of obligations of the United States or any agency thereof, obligations, participations, or other instruments of or issued by 

the Government National Mortgage Association, the Federal National Mortgage Association, the Federal Home 

Loan Mortgage Corporation, a Federal Home Loan Bank, 

the Federal Agricultural Mortgage Corporation, or a Farm 

Credit System institution chartered under and subject to 

the provisions of the Farm Credit Act of 1971 (12 U.S.C. 

2001 et seq.), and obligations of any State or of any political subdivision thereof. 

(B) The purchase, sale, acquisition, or disposition of securities and other instruments described in subsection 

(h)(4) in connection with underwriting or market-makingrelated activities, to the extent that any such activities 

permitted by this subparagraph are designed not to exceed 

the reasonably expected near term demands of clients, customers, or counterparties. 

(C) Risk-mitigating hedging activities in connection with 

and related to individual or aggregated positions, contracts, or other holdings of a banking entity that are designed to reduce the specific risks to the banking entity in 

connection with and related to such positions, contracts, or 

other holdings. 


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18 

(D) The purchase, sale, acquisition, or disposition of securities and other instruments described in subsection 

(h)(4) on behalf of customers. 

(E) Investments in one or more small business investment companies, as defined in section 102 of the Small 

Business Investment Act of 1958 (15 U.S.C. 662), investments designed primarily to promote the public welfare, of 

the type permitted under paragraph (11) of section 5136 of 

the Revised Statutes of the United States (12 U.S.C. 24), 

or investments that are qualified rehabilitation expenditures with respect to a qualified rehabilitated building or 

certified historic structure, as such terms are defined in 

section 47 of the Internal Revenue Code of 1986 or a similar State historic tax credit program. 

(F) The purchase, sale, acquisition, or disposition of securities and other instruments described in subsection 

(h)(4) by a regulated insurance company directly engaged 

in the business of insurance for the general account of the 

company and by any affiliate of such regulated insurance 

company, provided that such activities by any affiliate are 

solely for the general account of the regulated insurance 

company, if— 

(i) the purchase, sale, acquisition, or disposition is 

conducted in compliance with, and subject to, the insurance company investment laws, regulations, and 

written guidance of the State or jurisdiction in which 

each such insurance company is domiciled; and 

(ii) øthe appropriate Federal banking agencies¿ the 

Board, after consultation with the Financial Stability 

Oversight Council and the relevant insurance commissioners of the States and territories of the United 

States, øhave not jointly¿ has not determined, after 

notice and comment, that a particular law, regulation, 

or written guidance described in clause (i) is insufficient to protect the safety and soundness of the banking entity, or of the financial stability of the United 

States. 

(G) Organizing and offering a private equity or hedge 

fund, including serving as a general partner, managing 

member, or trustee of the fund and in any manner selecting or controlling (or having employees, officers, directors, 

or agents who constitute) a majority of the directors, trustees, or management of the fund, including any necessary 

expenses for the foregoing, only if— 

(i) the banking entity provides bona fide trust, fiduciary, or investment advisory services; 

(ii) the fund is organized and offered only in connection with the provision of bona fide trust, fiduciary, or 

investment advisory services and only to persons that 

are customers of such services of the banking entity; 

(iii) the banking entity does not acquire or retain an 

equity interest, partnership interest, or other ownership interest in the funds except for a de minimis investment subject to and in compliance with paragraph 

(4); 


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(iv) the banking entity complies with the restrictions 

under paragraphs (1) and (2) of subparagraph (f); 

(v) the banking entity does not, directly or indirectly, guarantee, assume, or otherwise insure the obligations or performance of the hedge fund or private 

equity fund or of any hedge fund or private equity 

fund in which such hedge fund or private equity fund 

invests; 

(vi) the banking entity does not share with the 

hedge fund or private equity fund, for corporate, marketing, promotional, or other purposes, the same name 

or a variation of the same name; 

(vii) no director or employee of the banking entity 

takes or retains an equity interest, partnership interest, or other ownership interest in the hedge fund or 

private equity fund, except for any director or employee of the banking entity who is directly engaged in 

providing investment advisory or other services to the 

hedge fund or private equity fund; and 

(viii) the banking entity discloses to prospective and 

actual investors in the fund, in writing, that any 

losses in such hedge fund or private equity fund are 

borne solely by investors in the fund and not by the 

banking entity, and otherwise complies with any additional rules of the øappropriate Federal banking agencies, the Securities and Exchange Commission, or the 

Commodity Futures Trading Commission,¿ Board, as 

provided in subsection (b)(2), designed to ensure that 

losses in such hedge fund or private equity fund are 

borne solely by investors in the fund and not by the 

banking entity. 

(H) Proprietary trading conducted by a banking entity 

pursuant to paragraph (9) or (13) of section 4(c), provided 

that the trading occurs solely outside of the United States 

and that the banking entity is not directly or indirectly 

controlled by a banking entity that is organized under the 

laws of the United States or of one or more States. 

(I) The acquisition or retention of any equity, partnership, or other ownership interest in, or the sponsorship of, 

a hedge fund or a private equity fund by a banking entity 

pursuant to paragraph (9) or (13) of section 4(c) solely outside of the United States, provided that no ownership interest in such hedge fund or private equity fund is offered 

for sale or sold to a resident of the United States and that 

the banking entity is not directly or indirectly controlled 

by a banking entity that is organized under the laws of the 

United States or of one or more States. 

(J) Such other activity as the øappropriate Federal banking agencies, the Securities and Exchange Commission, 

and the Commodity Futures Trading Commission¿ Board 

determine, by rule, as provided in subsection (b)(2), would 

promote and protect the safety and soundness of the banking entity and the financial stability of the United States. 

(2) LIMITATION ON PERMITTED ACTIVITIES.— 


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(A) IN GENERAL.—No transaction, class of transactions, 

or activity may be deemed a permitted activity under paragraph (1) if the transaction, class of transactions, or activity— 

(i) would involve or result in a material conflict of 

interest (as such term shall be defined by rule as provided in subsection (b)(2)) between the banking entity 

and its clients, customers, or counterparties; 

(ii) would result, directly or indirectly, in a material 

exposure by the banking entity to high-risk assets or 

high-risk trading strategies (as such terms shall be defined by rule as provided in subsection (b)(2)); 

(iii) would pose a threat to the safety and soundness 

of such banking entity; or 

(iv) would pose a threat to the financial stability of 

the United States. 

(B) RULEMAKING.—The øappropriate Federal banking 

agencies, the Securities and Exchange Commission, and 

the Commodity Futures Trading Commission¿ Board shall 

issue regulations to implement subparagraph (A), as part 

of the regulations issued under subsection (b)(2). 

(3) CAPITAL AND QUANTITATIVE LIMITATIONS.—The øappropriate Federal banking agencies, the Securities and Exchange 

Commission, and the Commodity Futures Trading Commission¿ Board shall, as provided in subsection (b)(2), adopt rules 

imposing additional capital requirements and quantitative limitations, including diversification requirements, regarding the 

activities permitted under this section if the øappropriate Federal banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission¿ Board 

determine that additional capital and quantitative limitations 

are appropriate to protect the safety and soundness of banking 

entities engaged in such activities. 

(4) DE MINIMIS INVESTMENT.— 

(A) IN GENERAL.—A banking entity may make and retain 

an investment in a hedge fund or private equity fund that 

the banking entity organizes and offers, subject to the limitations and restrictions in subparagraph (B) for the purposes of— 

(i) establishing the fund and providing the fund with 

sufficient initial equity for investment to permit the 

fund to attract unaffiliated investors; or 

(ii) making a de minimis investment. 

(B) LIMITATIONS AND RESTRICTIONS ON INVESTMENTS.— 

(i) REQUIREMENT TO SEEK OTHER INVESTORS.—A 

banking entity shall actively seek unaffiliated investors to reduce or dilute the investment of the banking 

entity to the amount permitted under clause (ii). 

(ii) LIMITATIONS ON SIZE OF INVESTMENTS.—Notwithstanding any other provision of law, investments by a 

banking entity in a hedge fund or private equity fund 

shall— 

(I) not later than 1 year after the date of establishment of the fund, be reduced through redemption, sale, or dilution to an amount that is not 


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21 

more than 3 percent of the total ownership interests of the fund; 

(II) be immaterial to the banking entity, as defined, by rule, pursuant to subsection (b)(2), but in 

no case may the aggregate of all of the interests 

of the banking entity in all such funds exceed 3 

percent of the Tier 1 capital of the banking entity. 

(iii) CAPITAL.—For purposes of determining compliance with applicable capital standards under paragraph (3), the aggregate amount of the outstanding investments by a banking entity under this paragraph, 

including retained earnings, shall be deducted from 

the assets and tangible equity of the banking entity, 

and the amount of the deduction shall increase commensurate with the leverage of the hedge fund or private equity fund. 

(C) EXTENSION.—Upon an application by a banking entity, the Board may extend the period of time to meet the 

requirements under subparagraph (B)(ii)(I) for 2 additional 

years, if the Board finds that an extension would be consistent with safety and soundness and in the public interest. 

ø(e) ANTI-EVASION.— ø(1) RULEMAKING.—The appropriate Federal banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission shall issue regulations, as 

part of the rulemaking provided for in subsection (b)(2), regarding internal controls and recordkeeping, in order to insure 

compliance with this section. 

ø(2) TERMINATION OF ACTIVITIES OR INVESTMENT.—Notwithstanding any other provision of law, whenever an appropriate 

Federal banking agency, the Securities and Exchange Commission, or the Commodity Futures Trading Commission, as appropriate, has reasonable cause to believe that a banking entity or nonbank financial company supervised by the Board 

under the respective agency’s jurisdiction has made an investment or engaged in an activity in a manner that functions as 

an evasion of the requirements of this section (including 

through an abuse of any permitted activity) or otherwise violates the restrictions under this section, the appropriate Federal banking agency, the Securities and Exchange Commission, 

or the Commodity Futures Trading Commission, as appropriate, shall order, after due notice and opportunity for hearing, the banking entity or nonbank financial company supervised by the Board to terminate the activity and, as relevant, 

dispose of the investment. Nothing in this paragraph shall be 

construed to limit the inherent authority of any Federal agency 

or State regulatory authority to further restrict any investments or activities under otherwise applicable provisions of 

law.¿ 

(e) ENFORCEMENT; ANTI-EVASION.— (1) APPROPRIATE FEDERAL BANKING AGENCY.—Notwithstanding any other provision of law except for any rules or 

guidance issued under subsection (b)(2), whenever the appropriate Federal banking agency has reasonable cause to believe 


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that a banking entity or nonbank financial company supervised 

by the Board has made an investment or engaged in an activity 

in a manner that either violates the restrictions under this section, or that functions as an evasion of the requirements of this 

section (including through an abuse of any permitted activity), 

such appropriate Federal banking agency shall order, after due 

notice and opportunity for hearing, the banking entity or 

nonbank financial company supervised by the Board to terminate the activity and, as relevant, dispose of the investment. 

(2) SECURITIES AND EXCHANGE COMMISSION AND COMMODITY

FUTURES TRADING COMMISSION.— (A) IN GENERAL.—Notwithstanding any other provision of 

law except for any rules or guidance issued under subsection (b)(2), whenever the Securities and Exchange Commission or the Commodity Futures Trading Commission, 

as appropriate, has reasonable cause to believe that a covered nonbank financial company for which the respective 

agency is the primary Federal regulator has made an investment or engaged in an activity in a manner that either 

violates the restrictions under this section, or that functions 

as an evasion of the requirements of this section (including 

through an abuse of any permitted activity), the Securities 

and Exchange Commission or the Commodity Futures 

Trading Commission, as appropriate, shall order, after due 

notice and opportunity for hearing, the covered nonbank financial company to terminate the activity and, as relevant, 

dispose of the investment. 

(B) COVERED NONBANK FINANCIAL COMPANY DEFINED.— In this paragraph, the term ‘‘covered nonbank financial 

company’’ means a nonbank financial company (as defined 

in section 102 of the Financial Stability Act of 2010) supervised by the Securities and Exchange Commission or the 

Commodity Futures Trading Commission, as appropriate. 

(f) LIMITATIONS ON RELATIONSHIPS WITH HEDGE FUNDS AND PRIVATE EQUITY FUNDS.— (1) IN GENERAL.—No banking entity that serves, directly or 

indirectly, as the investment manager, investment adviser, or 

sponsor to a hedge fund or private equity fund, or that organizes and offers a hedge fund or private equity fund pursuant 

to paragraph (d)(1)(G), and no affiliate of such entity, may 

enter into a transaction with the fund, or with any other hedge 

fund or private equity fund that is controlled by such fund, 

that would be a covered transaction, as defined in section 23A 

of the Federal Reserve Act (12 U.S.C. 371c), with the hedge 

fund or private equity fund, as if such banking entity and the 

affiliate thereof were a member bank and the hedge fund or 

private equity fund were an affiliate thereof. 

(2) TREATMENT AS MEMBER BANK.—A banking entity that 

serves, directly or indirectly, as the investment manager, investment adviser, or sponsor to a hedge fund or private equity 

fund, or that organizes and offers a hedge fund or private equity fund pursuant to paragraph (d)(1)(G), shall be subject to 

section 23B of the Federal Reserve Act (12 U.S.C. 371c 1), as 

if such banking entity were a member bank and such hedge 

fund or private equity fund were an affiliate thereof. 


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(3) PERMITTED SERVICES.— 

(A) IN GENERAL.—Notwithstanding paragraph (1), the 

Board may permit a banking entity to enter into any 

prime brokerage transaction with any hedge fund or private equity fund in which a hedge fund or private equity 

fund managed, sponsored, or advised by such banking entity has taken an equity, partnership, or other ownership interest, if— 

(i) the banking entity is in compliance with each of 

the limitations set forth in subsection (d)(1)(G) with 

regard to a hedge fund or private equity fund organized and offered by such banking entity; 

(ii) the chief executive officer (or equivalent officer) 

of the banking entity certifies in writing annually 

(with a duty to update the certification if the information in the certification materially changes) that the 

conditions specified in subsection (d)(1)(g)(v) are satisfied; and 

(iii) the Board has determined that such transaction 

is consistent with the safe and sound operation and 

condition of the banking entity. 

(B) TREATMENT OF PRIME BROKERAGE TRANSACTIONS.— 

For purposes of subparagraph (A), a prime brokerage 

transaction described in subparagraph (A) shall be subject 

to section 23B of the Federal Reserve Act (12 U.S.C. 371c1) as if the counterparty were an affiliate of the banking 

entity. 

(4) APPLICATION TO NONBANK FINANCIAL COMPANIES SUPERVISED BY THE BOARD.—The øappropriate Federal banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission¿ Board shall adopt rules, 

as provided in subsection (b)(2), imposing additional capital 

charges or other restrictions for nonbank financial companies 

supervised by the Board to address the risks to and conflicts 

of interest of banking entities described in paragraphs (1), (2), 

and (3) of this subsection. 

(g) RULES OF CONSTRUCTION.— 

(1) LIMITATION ON CONTRARY AUTHORITY.—Except as provided in this section, notwithstanding any other provision of 

law, the prohibitions and restrictions under this section shall 

apply to activities of a banking entity or nonbank financial 

company supervised by the Board, even if such activities are 

authorized for a banking entity or nonbank financial company 

supervised by the Board. 

(2) SALE OR SECURITIZATION OF LOANS.—Nothing in this section shall be construed to limit or restrict the ability of a banking entity or nonbank financial company supervised by the 

Board to sell or securitize loans in a manner otherwise permitted by law. 

(3) AUTHORITY OF FEDERAL AGENCIES AND STATE REGULATORY

AUTHORITIES.—Nothing in this section shall be construed to 

limit the inherent authority of any Federal agency or State 

regulatory authority under otherwise applicable provisions of 

law. 


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24 

(h) DEFINITIONS.—In this section, the following definitions shall 

apply: 

(1) BANKING ENTITY.—The term ‘‘banking entity’’ means any 

insured depository institution (as defined in section 3 of the 

Federal Deposit Insurance Act (12 U.S.C. 1813)), any company 

that controls an insured depository institution, or that is treated as a bank holding company for purposes of section 8 of the 

International Banking Act of 1978, and any affiliate or subsidiary of any such entity. For purposes of this paragraph, the 

term ‘‘insured depository institution’’ does not include an øinstitution that functions solely in a trust or fiduciary capacity, 

if—¿ institution— 

(A) that functions solely in a trust or fiduciary capacity, 

if— 

ø(A)¿ (i) all or substantially all of the deposits of 

such institution are in trust funds and are received in 

a bona fide fiduciary capacity; 

ø(B)¿ (ii) no deposits of such institution which are 

insured by the Federal Deposit Insurance Corporation 

are offered or marketed by or through an affiliate of 

such institution; 

ø(C)¿ (iii) such institution does not accept demand 

deposits or deposits that the depositor may withdraw 

by check or similar means for payment to third parties 

or others or make commercial loans; and 

ø(D)¿ (iv) such institution does not— 

ø(i)¿ (I) obtain payment or payment related 

services from any Federal Reserve bank, including 

any service referred to in section 11A of the Federal Reserve Act (12 U.S.C. 248a); or 

ø(ii)¿ (II) exercise discount or borrowing privileges pursuant to section 19(b)(7) of the Federal 

Reserve Act (12 U.S.C. 461(b)(7))ø.¿; or 

(B) that does not have and is not controlled by a company that has— 

(i) more than $10,000,000,000 in total consolidated 

assets; and 

(ii) total trading assets and trading liabilities, as reported on the most recent applicable regulatory filing 

filed by the institution, that are more than 5 percent of 

total consolidated assets. 

(2) HEDGE FUND; PRIVATE EQUITY FUND.—The terms ‘‘hedge 

fund’’ and ‘‘private equity fund’’ mean an issuer that would be 

an investment company, as defined in the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), but for section 

3(c)(1) or 3(c)(7) of that Act, or such similar funds as the øappropriate Federal banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading 

Commission¿ Board may, by rule, as provided in subsection 

(b)(2), determine. 

(3) NONBANK FINANCIAL COMPANY SUPERVISED BY THE

BOARD.—The term ‘‘nonbank financial company supervised by 

the Board’’ means a nonbank financial company supervised by 

the Board of Governors, as defined in section 102 of the Financial Stability Act of 2010. 


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25 

(4) PROPRIETARY TRADING.—The term ‘‘proprietary trading’’, 

when used with respect to a banking entity or nonbank financial company supervised by the Board, means engaging as a 

principal for the trading account of the banking entity or 

nonbank financial company supervised by the Board in any 

transaction to purchase or sell, or otherwise acquire or dispose 

of, any security, any derivative, any contract of sale of a commodity for future delivery, any option on any such security, derivative, or contract, or any other security or financial instrument that the øappropriate Federal banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission¿ Board may, by rule as provided in 

subsection (b)(2), determine. 

(5) SPONSOR.—The term to ‘‘sponsor’’ a fund means— 

(A) to serve as a general partner, managing member, or 

trustee of a fund; 

(B) in any manner to select or to control (or to have employees, officers, or directors, or agents who constitute) a 

majority of the directors, trustees, or management of a 

fund; or 

(C) to share with a fund, for corporate, marketing, promotional, or other purposes, the same name or a variation 

of the same name. 

(6) TRADING ACCOUNT.—The term ‘‘trading account’’ means 

any account used for acquiring or taking positions in the securities and instruments described in paragraph (4) principally 

for the purpose of selling in the near term (or otherwise with 

the intent to resell in order to profit from short-term price 

movements), and any such other accounts as the øappropriate 

Federal banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission¿ 

Board may, by rule as provided in subsection (b)(2), determine. 

(7) ILLIQUID FUND.— (A) IN GENERAL.—The term ‘‘illiquid fund’’ means a 

hedge fund or private equity fund that— 

(i) as of May 1, 2010, was principally invested in, or 

was invested and contractually committed to principally invest in, illiquid assets, such as portfolio companies, real estate investments, and venture capital 

investments; and 

(ii) makes all investments pursuant to, and consistent with, an investment strategy to principally invest in illiquid assets. In issuing rules regarding this 

subparagraph, the Board shall take into consideration 

the terms of investment for the hedge fund or private 

equity fund, including contractual obligations, the ability of the fund to divest of assets held by the fund, and 

any other factors that the Board determines are appropriate. 

(B) HEDGE FUND.—For the purposes of this paragraph, 

the term ‘‘hedge fund’’ means any fund identified under 

subsection (h)(2), and does not include a private equity 

fund, as such term is used in section 203(m) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(m)). 

* * * * * * * 


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(26) 

MINORITY VIEWS 

H.R. 4790 is the latest attempt to weaken the Volcker Rule, a 

cornerstone of Wall Street reform enacted in the wake of the financial crisis that prohibits taxpayer-backed banks from risky proprietary trading and from owning hedge and private equity funds. The 

bill would create a dangerous loophole by providing a blanket exemption from the Volcker Rule for banks with consolidated assets 

of $10 billion or less and with less than 5% of those assets in trading assets. The bill would also delegate sole rulemaking authority 

on the Volcker Rule to the Federal Reserve, inappropriately and 

unnecessarily taking away the jurisdiction of the Federal Deposit 

Insurance Corporation (FDIC), Office of the Comptroller of Currency (OCC), Securities and Exchange Commission (SEC), and 

Commodity Futures Trading Commission (CFTC) and making it 

easier for the Trump Administration to weaken or repeal the rule. 

Leading up to the financial crisis, Wall Street megabanks engaged in ‘‘proprietary trading,’’ which is essentially speculative, 

highly-leveraged bets that benefit their bottom line, but use federally-insured loans backed by the U.S. taxpayer. When the housing 

bubble finally burst, these bets in risky credit-default swaps and 

subprime mortgage-backed securities led to massive losses and a 

federal bailout. To protect the American taxpayer and the economy 

from this sort of risky trading, Congress included the Volcker Rule 

as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. 

Seven years later, the Volcker Rule is largely in place. It has resulted in less reckless risk-taking by Wall Street megabanks and 

a stronger financial system. And, despite dire predictions by opponents, our markets are adapting and thriving. For example, in the 

bond market, which has long been dominated by bank dealers, we 

have seen record new bond issuances by companies seeking to raise 

funds and record trading volumes in those bonds. Most other 

metrics also show a healthy, liquid corporate bond market. 

Nevertheless, H.R. 4790 would provide an exemption from the 

Volcker Rule’s prohibitions against proprietary trading and owning 

hedge and private equity funds for entities with consolidated assets 

of $10 billion or less and with less than 5% of those assets in trading assets. While most community banks currently do not engage 

in such risky activities, a blanket exemption sends them the Congressional thumbs-up for them to do so in the future instead of focusing on the traditional business of banking. This blanket exemption is opposed by former Fed Chairman Paul Volcker, FDIC Chairman Martin Gruenberg, FDIC Vice Chairman Thomas Hoenig, and 

investor advocates. According to Mr. Hoenig, the exemption could 

‘‘open a loophole that would invite abuse of the safety net in the 

future.’’ If we truly want to support our community banks while ensuring that they remain in the traditional business of banking, we 


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27 

should be looking at other ways to reduce their compliance burden, 

such as by creating a presumption of compliance with the Volcker 

Rule. 

H.R. 4790 would also repeal the requirement that the Federal 

Reserve, OCC, FDIC, CFTC, and SEC jointly implement the rule. 

Instead, the bill would delegate sole rulemaking authority to the 

Federal Reserve, which could choose to consult with the other 

banking regulators, the SEC or the CFTC. This would unreasonably cut the FDIC out of any future rule changes, even though it 

is the regulator charged with protecting deposit insurance against 

the very risky, speculative activities the Volcker Rule was designed 

to prevent. It also cuts the SEC and CFTC out from the rulemaking process, even though those agencies have the expertise and 

jurisdiction over broker-dealers and futures traders and their market making activities. Worse, this change would make it easier for 

the Trump administration to weaken and repeal the rule even 

though it was efficiently promulgated in 2 years and the regulators 

are now working together to make appropriate changes. While the 

bill would at least allow the appropriate banking regulators, SEC, 

and CFTC to enforce the rule, such enforcement authority is meaningless if the Volcker rule is effectively gutted by the Trump Administration. 

For these reasons, we oppose H.R. 4790. 

MAXINE WATERS. 

MICHAEL E. CAPUANO. 

AL GREEN. 

CAROLYN B. MALONEY. 

NYDIA M. VELA ́ ZQUEZ. 

Æ 


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