Washington — US banking regulators on Tuesday approved changes easing a rule introduced after the 2007-2009 financial crisis that bans banks from trading on their own account, giving Wall Street one of its biggest wins under the Trump administration.

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) approved the revamped version of the so-called Volcker rule, which aims to ban lenders that accept US taxpayer-insured deposits from engaging in proprietary trading.

The changes, first proposed in May 2018, followed years of lobbying by banks, including Goldman Sachs, JPMorgan Chase and Morgan Stanley, which have complained the rule is too vague and complex.

The new rule gives banks more leeway in terms of trading activity, and simplifies how banks can tell if that trading is permitted by law.

While many regulatory experts have agreed the prior rule was too cumbersome, the changes have been criticised by consumer groups and Democratic lawmakers who say a rewrite could create new systemic risks.

FDIC commissioner Martin Gruenberg, a Democrat who backed the Volcker rewrite proposed in May 2018, voted against the final rule on Tuesday, saying it would “effectively undo” the rule’s protections. The other three FDIC board members, all Republicans, voted in favour.

“Trump regulators continue to open a Pandora’s box of risky trading and speculation at the expense of American taxpayers,” Senator Sherrod Brown, the top Democrat on the Senate Banking Committee, said in a statement.

Analysts say the final rule, which is significantly different from the proposed 2018 version, could also be vulnerable to legal challenges.

The rewrite aims to clarify which trades are exempt from the ban, such as when banks facilitate client trades and hedge risks, and to expand those exemptions. The final rewrite scraps a proposed new test for identifying proprietary trading that banks complained would have made the rule even more complicated.

That proposed “accounting test” was meant to replace a more subjective test that aimed to identify whether a trader intended a trade to be speculative. But banks argued it could apply to a host of additional financial instruments not meant to be covered by the rule.

The final rule scraps that proposal for large Wall Street firms, instead simplifying the original test and only applying it to much smaller banks. </s> WASHINGTON, Aug 20 (Reuters) - U.S. banking regulators on Tuesday approved changes easing a rule introduced after the 2007-2009 financial crisis that bans banks from trading on their own account, giving Wall Street one of its biggest wins under the Trump administration.

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) approved the revamped version of the so-called "Volcker Rule," which aims to ban lenders that accept U.S. taxpayer-insured deposits from engaging in proprietary trading.

The new rule gives banks more leeway in terms of trading activity, and simplifies how banks can tell if that trading is permitted by law.

While many regulatory experts have agreed the prior rule was too cumbersome, the changes have been criticized by consumer groups and Democratic lawmakers who say a rewrite could create new systemic risks.

FDIC commissioner Martin Gruenberg, a Democrat who backed the Volcker rewrite proposed in May 2018, voted against the final rule Tuesday, saying it would "effectively undo" the rule's protections. The other three FDIC board members, all Republicans, voted in favor.

"Trump regulators continue to open a Pandora's box of risky trading and speculation at the expense of American taxpayers," Senator Sherrod Brown, the top Democrat on the Senate Banking Committee, said in a statement.

Analysts say the final rule, which is significantly different from the proposed 2018 version, could also be vulnerable to legal challenges.

The rewrite aims to clarify which trades are exempt from the ban, such as when banks facilitate client trades and hedge risks, and to expand those exemptions. The final rewrite scraps a proposed new test for identifying proprietary trading that banks complained would have made the rule even more complicated.

That proposed "accounting test" was meant to replace a more subjective test that aimed to identify whether a trader intended a trade to be speculative. But banks argued it could apply to a host of additional financial instruments not meant to be covered by the rule.

The final rule scraps that proposal for large Wall Street firms, instead simplifying the original test and only applying it to much smaller banks.

At the same time, the rewrite simplifies a separate part of the rule which makes it easier for banks to invest in hedge funds or private equity funds. Regulators said they expect to propose further easing of the "covered funds" aspect of the rule, including for foreign firms, later this year.

The banking industry hailed the relief, while eager to see regulators put forward that additional relief.

"We urge the regulators to finish the job of Volcker Rule reform," said Kevin Fromer with the Financial Services Forum, an industry group that represents the CEOs of the nation's biggest banks.

The rule will become effective on Jan. 1, 2020, but banks will have one year to comply.

The OCC and the FDIC are two of five regulators charged with implementing the rule. The others - the Federal Reserve, the Securities and Exchange Commission, and the Commodities Futures Trading Commission - are expected to approve the new rule soon. </s> WASHINGTON (Reuters) - Two U.S. banking regulators on Tuesday approved changes easing a rule introduced after the 2007-2009 financial crisis that bans banks from trading on their own account, giving Wall Street one of its biggest wins under the Trump administration.

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) approved the final version of the so-called “Volcker Rule,” which aims to ban lenders that accept U.S. taxpayer-insured deposits from engaging in proprietary trading.

The changes, first proposed in May 2018, followed years of lobbying by banks, including Goldman Sachs Group Inc (GS.N), JPMorgan Chase & Co (JPM.N) and Morgan Stanley (MS.N), which have long complained the rule is too vague and complex.

While many regulatory experts also agree the rule is too cumbersome, the proposed changes have been criticized by consumer groups and Democratic lawmakers who say a rewrite could create new systemic risks. Analysts say the final rule, which is significantly different from the proposed 2018 version, could also be vulnerable to legal challenges.

The rewrite aims to clarify which trades qualify for safe harbors, such as when banks facilitate client trades and hedge risks, and to expand those exemptions. The final rewrite scraps a proposed new test for identifying proprietary trading that banks complained would have made the rule even more complicated.

That proposed “accounting test” was meant to help define what trading fell under the safe habor for facilitating client trades, replacing a more subjective test that aims to identify whether a trader intended a trade to be speculative. But banks argued it could apply to a host of additional financial instruments not meant to be covered by the rule.

The final rule scraps that proposal and in turn simplifies the original test to apply to firms with just $1 billion in trading assets, giving relief to all the major Wall Street firms.

At the same time, the rewrite simplifies a separate part of the rule which makes it easier for banks to invest in hedge funds or private equity funds. Regulators said they expect to propose further easing of the “covered funds” aspect of the rule, including for foreign firms, later this year.

The rule will become effective on Jan. 1, 2020, but banks will have one year to comply.

The OCC and the FDIC are two of five regulators charged with implementing the rule. The others - the Federal Reserve, the Securities and Exchange Commission, and the Commodities Futures Trading Commission - are expected to approve the new rule soon. </s> Wall Street banks seem to be in a win-a-win situation, currently, on easing out of the Volcker Rule under the Trump administration. On Tuesday, the revamped rule was approved by two of the five U.S. regulators, under which related regulatory requirements have been simplified, providing more flexibility to banks on their restricted trading activities.



 The rule will be effective Jan 1, 2020 for banks, with a compliance date of Jan 1, 2021.



Volcker Rule - A Brief Recap



 The Volcker Rule prohibits banks or insured depository institutions from conducting proprietary trading, i.e. the practice of financial firms investing to pocket profits rather than buying or selling securities to meet customers' demands. Also, it barred these companies from acquiring or retaining ownership interests in hedge funds or private equity funds.



 The Volcker Rule had drawn widespread criticism at its very inception. Banks, including JPMorgan Chase JPM , Goldman Sachs GS and Morgan Stanley MS , have been complaining of its complexity and claimed the rule to be vague. Further, in 2017, the U.S. Chamber of Commerce put forth its views over the negative impacts of the rule on liquidity and that the costs associated with it outweigh benefits.



Recent Developments



 The Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corp (FDIC) have given the green light, while approval from the Federal Reserve, the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) are anticipated in the coming weeks soon.



 "One of the post-crisis reforms that has been most challenging to implement for regulators and industry is the Volcker Rule," said FDIC chairman Jelena McWilliams. "Distinguishing between what qualifies as proprietary trading and what does not has proven to be extremely difficult," McWilliams noted.



 "Meanwhile, banks that do relatively little trading are required to go through substantial compliance exercises to ensure that activities that have long been considered traditional banking activities do not run afoul of the Volcker Rule," further mentioned the FDIC chairman.



 In July 2018, the FDIC, OCC, Federal Reserve Board, SEC and CFTC unanimously published proposed amendments aimed at simplifying and improving the Volcker Rule that prevents banks from engaging in certain types of speculative investments, with a view to curb their risk-taking abilities.



Key Changes under the Final Rule



 Depending on the size of a bank's trading assets and liabilities, the rule's compliance measures will be tailored, with the strictest requirements for the ones with high levels of trading activities. Notably, banks with minimum $20 billion in trading assets will be facing stringent requirements, while companies with trading assets between $1 billion and $10 billion will benefit from the reduced compliance requirements. Finally, financial firms with trading assets lower than $1 billion will be subject to the lowest level of compliance requirements.



 Also, a proprietary trading ban has been eased, which prevents banks from making short-term investments using their own capital.



 Furthermore, regulators have allowed banks to determine their own risk limits for underwriting activities and market making. Nevertheless, the companies, with significant trading assets and liabilities, will still be required to have a comprehensive internal compliance program.



 Moreover, the final rule removes the assumption that positions held by lenders for less than 60 days are proprietary trades. It would even discard some parts of a test that determines whether or not a trade is proprietary, and replace it with a new criteria based on how the bank accounts for the trades.



 Banks will also be freed from the elaborate documentation requirements for hedging activities under certain conditions. The revamped rule also simplifies trading activity-related information to be provided to the agencies.



 Remarkably, foreign banks stand to benefit greatly from a major change in the rule. Under the existing rule, foreign banks are allowed to engage in proprietary trading only if it occurs outside the United States. However, per the final rule, the exemption will expand to trades initiated outside the country but should go through a U.S. branch or affiliate or is financed by one.



Will Rolling Back of the Rule be a Boon for Banks?



 The final rule is anticipated to have a positive impact on the safety and soundness of the financial system, and greatly reduce fixed costs for the financial institutions. Additionally, these banks can now freely engage in hedging activities in limits they consider risk-free that might help them counter risk in other parts of their businesses.



 Moreover, the changes in the Volcker Rule might help improve lending as banks will likely benefit from better liquidity positions.



 Nonetheless, easing of regulations might leave behind some loopholes that banks seek to exploit. Therefore, the regulators are expected to strictly keep supervising banks' activities, and maintain them on the right track to avoid another crisis.



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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report </s> WASHINGTON (Reuters) - U.S. banking regulators on Tuesday eased trading regulations for Wall Street banks, giving them one of their biggest wins under the Trump administration but drawing criticism from consumer activists who warned of potential risks to taxpayers.

FILE PHOTO: Jelena McWilliams, chairman of the Federal Deposit Insurance Corporation, on Capitol Hill in Washington, U.S. January 23, 2018. REUTERS/Aaron P. Bernstein/File Photo/File Photo

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) approved the revamped version of the so-called “Volcker Rule,” which aims to ban lenders that accept U.S. taxpayer-insured deposits from engaging in proprietary trading.

The changes, first proposed in May 2018, followed years of lobbying by banks, including Goldman Sachs Group Inc (GS.N), JPMorgan Chase & Co (JPM.N) and Morgan Stanley (MS.N), which have long complained the rule is too vague and complex.

The new rule gives banks more leeway in terms of trading activity and simplifies how banks can tell if that trading is permitted by law.

While many regulatory experts have agreed the prior rule was too cumbersome, the changes were criticized by consumer groups and Democratic lawmakers who say a rewrite could put taxpayers at risk.

FDIC Commissioner Martin Gruenberg, a Democrat who backed the Volcker rewrite proposed in May 2018, voted against the final rule Tuesday, saying it would “effectively undo” the rule’s protections.

In particular, he warned that the new rule narrows the definition of banned trading in a way that could free up banks to engage in riskier bets with potentially billions of dollars in financial instruments.

The other three FDIC board members, all Republicans, voted in favor.

Democratic Representative Maxine Waters, who chairs the House Financial Services Committee, accused regulators of undercutting a cornerstone of Wall Street reforms introduced by the 2010 Dodd-Frank law.

“The final rule published today would curtail prohibitions in a manner that Congress never intended,” she said in a statement calling on other regulators to halt the project.

Analysts say the final rule, which is significantly different from the proposed 2018 version, could also be vulnerable to legal challenges.

The rewrite aims to clarify which trades are exempt from the ban, such as when banks facilitate client trades and hedge risks, and to expand those exemptions. The final rewrite scraps a proposed new test for identifying proprietary trading that banks complained would have made the rule even more complicated.

That proposed “accounting test” was meant to replace a more subjective test that aimed to identify if a trader intended a trade to be speculative. But banks argued it could apply to a host of additional financial instruments not meant to be covered by the rule.

The final rule scraps that proposal for large Wall Street firms, instead simplifying the original test and only applying it to much smaller banks.

At the same time, the rewrite simplifies a separate part of the rule which makes it easier for banks to invest in hedge funds or private equity funds. Regulators said they expect to propose further easing of the “covered funds” aspect of the rule, including for foreign firms, later this year.

The banking industry hailed the rule, while calling for regulators to expedite that additional relief.

FILE PHOTO: Joseph M. Otting speaks after being sworn in as Comptroller of the Currency in Washington, U.S., November 27, 2017. REUTERS/Joshua Roberts

“We urge the regulators to finish the job of Volcker Rule reform,” said Kevin Fromer with the Financial Services Forum, an industry group that represents the CEOs of the nation’s biggest banks.

The rule will become effective on Jan. 1, 2020, but banks will have one year to comply.

The OCC and the FDIC are two of five regulators charged with implementing the rule. The others - the Federal Reserve, the Securities and Exchange Commission, and the Commodities Futures Trading Commission - are expected to approve the new rule soon. </s> You remember the Volcker Rule, don’t you? It was the brainchild of former Fed chair Paul Volcker, who wanted to prohibit banks from proprietary trading—that is, betting their own money on risky investments. Volcker figured that prop trading should be done by hedge funds and investment banks, not by regulated commercial banks using house money with an implicit government guarantee.

The FDIC and four other independent agencies have dropped their proposal to tie the rule to a strict accounting standard — a move that banks argued would have made it more burdensome by subjecting additional trades to heightened supervision. Instead, regulators will give banks the benefit of the doubt on a much wider range of trades, according to the text of the final rule.

….The inclusion of the accounting provision in the original Volcker 2.0 proposal had been key in securing the support of Martin Gruenberg, then FDIC chairman and now a regular board member at the agency. Gruenberg, an Obama appointee, voted against the revised rule Tuesday morning, saying it would “effectively undo” the Volcker rule’s ban on proprietary trading. As amended, “the Volcker rule will no longer impose a meaningful constraint on speculative and proprietary trading by banks and bank-holding companies benefiting from the public safety net” of insured deposits, Gruenberg said. </s> In an unfortunate decision, three of the four voting members of the board of the Federal Deposit Insurance Corporation (FDIC) voted to significantly gut the Volcker Rule, a risk reduction cornerstone of the Obama era financial reform law, The Wall Street Reform and Consumer Protection Act (Dodd-Frank). The Office of the Comptroller of the Currency (OCC) also released a statement that it is in favor of changes to the Volcker Rule.

I find it very odd that the FDIC took the lead in weakening the Volcker Rule. Should a bank fail because of its excessive risk taking, only the FDIC is empowered to trigger Dodd-Frank’s Title II to resolve a big bank behemoth with its thousands of intricate financial transactions. As I wrote recently, the Volcker Rule needs to be strengthened not weakened. Banks barely started implementing the Volcker Rule in 2014. We have not even gone through a credit cycle to test how well the Volcker Rule would work in an economic downturn. Yesterday and today, I spent time going through the 300-page rule. The footnotes tell one the extent of significant bank lobbying that took place to weaken the Volcker Rule. Yet, bank lobbyists have never been able to prove that the financial system or they were in any way hurt by the Volcker Rule.

The revised Volcker Rule now requires that:
• Banking entities with total consolidated trading assets and liabilities of at least $20 billion would be considered to have “significant” trading assets and liabilities. Banking entities with significant trading assets and liabilities would be subject to a six-pillar compliance program, annual CEO attestation, and metrics requirements.
• Banking entities with total consolidated trading assets and liabilities between $1 billion and $20 billion would be considered to have “moderate” trading assets and liabilities. Banking entities with moderate trading assets and liabilities would be subject to a simplified compliance program.
• Banking entities with total consolidated trading assets and liabilities of less than $1 billion would be considered to have “limited” trading assets and liabilities. Banking entities with limited trading assets and liabilities would be subject to a presumption of compliance.

Martin Gruenberg, the lone member of the FDIC Board of Directors, who rightly voted against the significant weakening of the Volcker Rule did a great job explaining with data and facts that the revised rule would “allow the largest, most systemically important banks and bank holding companies to engage in speculative proprietary trading funded with FDIC-insured deposits.” More than any member of the FDIC Board of Directors, Gruenberg is intimately aware of how the Volcker Rule is supposed to work. He reminded us all that the 2013 Volcker Rule “recognized that proprietary trading occurs not only in financial instruments reported on the bank’s balance sheet as “trading assets and liabilities”, but in the accounts also denoted as available for sale (AFS), in equities held at fair value, and in derivatives not held for trading. The Notice of Proposed Rulemaking (NPR) adopted by the agencies in 2018 to make changes in the Volcker Rule included a definition of trading account that also captured all of these fair valued financial instruments.” The final rule that the FDIC Board voted on yesterday included within the definition of trading account only one of those categories of fair valued financial instruments, those reported on the bank’s balance sheet as trading assets and liabilities. In other words, the revisions narrow significantly the scope of financial instruments covered by the Volcker Rule. “Because of its narrower definition of trading account,” said Gruenberg, the new rule “captures over $1.8 trillion of financial instruments for purposes of the Volcker Rule. Thus, at the holding company level, about 25 percent of the financial instruments subject to the 2013 current rule and the 2018 NPR would no longer be subject to the prohibition on proprietary trading.”

“This rule would free up hundreds of billions of dollars in securities and derivatives for proprietary trading purposes, completely outside of Volcker Rule coverage and in fact with an explicit exemption from proprietary trading restrictions,” said Marcus Stanley, policy director at Americans for Financial Reform. “By simply designating positions as not explicitly held for trading, banks could easily evade the Volcker Rule. These changes spell the end of meaningful constraints on proprietary trading at taxpayer

supported banks, and another step in dismantling financial stability safeguards.”

The Volcker Rule did not include proposed definition changes to the Trading Account; this would have better insured that banks would be prohibited from putting covered prop trading positions that are in the Volcker rule statute. Unfortunately, the new Trading Account definition creates a presumption that financial instruments held more than 60 days are out of the scope for the Volcker Rule. My fear is that especially in such a low interest rate environment in the U.S. and negative rates in some countries, like Germany, banks will be incentivized to hold riskier instruments, such as below investment grade bonds or illiquid securitizations, for longer than 60 days.

Incredibly, Volcker Rule revisions place the burden on bank supervisors, who have fewer personnel and technology resources than banks, to rebut the presumption of compliance and demonstrate otherwise. This will be very difficult for bank supervisors given their time and resource constraints. I agree with Better Markets’ Dennis Kelleher’s assessment that “The new Volcker Rule thereby substantially narrows the scope of the Volcker Rule and weakens a core pillar of the Dodd-Frank Act’s effort to prevent the Wall Street gambling using financial instruments that have repeatedly impaired financial stability.” According to Kelleher “The new Volcker Rule establishes a so-called “presumption of compliance” for market-making and underwriting activities. Those “presumptions” are a truly radical departure from longstanding supervisory practices and represent a return to the same failed industry self-policing policies and philosophies that led to the 2008 financial crisis.”

As I wrote in an eight-part series for American Banker’s BankThink in 2014, I was not initially a big fan of the Volcker Rule. I was concerned that its complexity would be challenging both for banks which have to implement the rule and even more so for on- and off-site bank supervisors and examiners who are the ones who have to determine whether banks are indeed complying with the Volcker Rule. However, now that several years have gone by, the big banks with which I work mostly have been able to comply with the Volcker Rule. Since 2010 banks have spent millions on systems, modelers, and other personnel to comply with the Volcker Rule. All the work that the banks have put in to learn to calculate their Volcker Rule required metrics has actually helped banks be better data aggregators and to identify and measure their market, credit, and liquidity risks of all of their securities and trading desks in a much more granular manner.

Unfortunately, the “final rule would include modifications to the metrics collection requirements to, among other things, eliminate certain metrics and reduce the compliance burdens associated with the remaining metrics requirements.” Worse yet, “Metrics filers must submit metrics on a quarterly basis with a reporting schedule of 30 days after the end of each quarter.” Metrics had been reported to the regulators on a monthly basis. Do we really believe that big banks like Goldman Sachs and Morgan Stanley do not have qualified quantitative personnel who can calculate Volcker Rule risk metrics? If they do not, banks have bigger problems to sort out. Moreover, market participants do not know whether Volcker Rule compliance is indeed taking place, since unfortunately banks are not required to disclose their monthly Volcker quantitative metrics that would tell us information about their securities inventory, their profit and loss, Value-at-Risk (VAR), and stressed VAR by each trading desk.

It is very likely that the Commodities Futures Trading Commission, Securities Exchange Commission, and the Federal Reserve Board will soon also vote to adopt the revisions to the Volcker Rule. Banks will have one year as of the beginning of 2020 to comply. Particularly because we are so late in the economic cycle, bank regulators should definitely compel banks to increase their risk weights, and hence the capital to sustain unexpected losses due to the increased risk that banks will now pose to depositors and taxpayers. </s> watchdogs handpicked by President eased the Volcker Rule’s controversial ban on making speculative investments, wrapping up a top deregulatory priority that’s long been sought by the financial industry.

The changes, approved Tuesday by the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp., seek to provide lenders a much clearer picture of which trades are prohibited, giving them confidence to engage in transactions without fear of violating Volcker.

But one Democratic FDIC board member warned the rollback could again endanger the financial system by allowing lenders to recklessly trade hundreds of billions of assets like they did before the 2008 financial crisis.

The Volcker rewrite marks a victory for Wall Street, especially Goldman Sachs Group Inc., which has lobbied aggressively to weaken the rule for years. But the changes leave in place the rule’s prohibition on proprietary trading—the practice of making market bets with their own money. And lenders still face restrictions on investing in private equity and hedge funds.

“One of the post-crisis reforms that has been most challenging to implement for regulators and industry is the Volcker Rule,” Jelena McWilliams, who leads the FDIC, said at a Tuesday public meeting. “The amendments will provide clarity, certainty and objectivity.”

A response to the 2008 meltdown, Volcker was meant to address concerns that some bank trading desks had behaved like hedge funds, using their firms’ balance sheets to risky wagers. The six biggest lenders racked up almost $16 billion losses from their prop-trading units over five quarters during the crisis, leading in part to the huge taxpayer bailouts that stoked public anger as consumers suffered through a recession.

Former Federal Reserve Chairman Paul Volcker, the rule’s key advocate, said such trading could sink and threaten the broader economy. It was included in the 2010 Dodd-Frank Act, with regulators putting it in place three years later.

Almost since the ink was dry, banks have complained that Volcker was exceedingly complex, making the rule difficult to comply with. So regulators picked by Trump arrived at their agencies with a strong interest in simplifying the rule. The revamp, known as Volcker 2.0, is part of a steady effort to soften regulations during his administration. While watchdogs haven’t ripped up the post-crisis rule book, critics argue that taken together, the changes will insert renewed risk into the financial system.

What authorities came up with on Volcker relies on what’s known as the market-risk prong to determine which transactions are prohibited for banks with more than $1 billion of trading activity.

That standard is something large banks already use and understand, so theoretically, it will be easier for them to determine in real time whether a trade is banned. Under the rule, chief executive officers of banks with more than $20 billion in trading activity will be required to attest to their firms’ compliance. The changes take effect January 1, 2020, but banks will have another year to comply.

In one of the biggest changes, banks will no longer be assumed to be engaging in banned trades when they conduct short-term transactions. The so-called rebuttable presumption was one of Wall Street’s most-hated aspects of the original Volcker Rule with JPMorgan Chase & Co. CEO Jamie Dimon once famously quipping that each trader would need a psychologist and a lawyer by his side to comply.

In another assist to banks, regulators provide more clarity on market making -- the permitted practice under Volcker of engaging in trades on behalf of clients. Specifically, watchdogs gave lenders a clear limit for assets held in their market-making portfolios that will allow firms to get right up to the line without fear of violating Volcker.

FDIC board member Martin Gruenberg, a Democrat, blasted the changes, saying Volcker has been defanged because he believes the proprietary trading restrictions will no longer apply to many types of financial assets that had been covered.

“The Volcker Rule will no longer impose a meaningful constraint on speculative, proprietary trading by banks and bank holding companies benefiting from the public safety net,” said Gruenberg, who voted against the revamp.

While the changes will be welcomed by banks, the industry has evolved dramatically in recent years, casting doubt on how far firms might try to return to the pre-crisis trading heydays. Even Goldman Sachs, burdened by dozens of new rules, has embraced commercial banking. In a sign of how much has changed, Apple Inc. announced Tuesday that is was partnering with Goldman to launch a credit card.

Regulators also provided some flexibility on restrictions on investing in private equity and hedge funds. Banks will now have more freedom to do so on behalf of clients.

The changes to the five-agency rule also have to be approved by the Fed, Securities and Exchange Commission and Commodity Futures Trading Commission.

With the bulk of Volcker revisions done, there are a number of other rules awaiting attention -- many of them being handled by the Fed. They include significant shifts in bank capital rules and leverage limits, plus fundamental changes to the Fed’s annual stress tests. </s> Wall Street spent the better part of a decade battling for regulators to reshape the Volcker rule, which contained a ban on banks making speculative investments. When the changes finally landed Tuesday, the win felt more symbolic.

The Federal Deposit Insurance Corp. and other regulators rolled out tweaks that clarify which trades are prohibited and lay out limits for banks to follow in their market-making units. Although those are some of the revisions that banks had pushed for, they’re far from transformational changes that will spark a trading revival.

“Reports of the demise of the Volcker rule are premature,” said Jai Massari, a partner at law firm Davis Polk & Wardwell. “It will be more clear whether activities will be scoped in or out of the rule, but the overall impact is not yet clear.”

Bank trading divisions have been totally reshaped since the Volcker rule was passed as part of the 2010 Dodd-Frank Act, the changes spurred by the new rules as well as technological advancements and a multiyear revenue slump. Global banks’ stock and bond desks are coming off their worst collective first half of a year since before the financial crisis a decade ago. Goldman Sachs Group Inc. — once the king of proprietary trading — just launched a credit card.

The Volcker rule targeted banks’ trading operations under the rationale that FDIC-insured lenders shouldn’t act like hedge funds. Proprietary-trading desks racked up billions of dollars in losses during the financial crisis and contributed to the need for taxpayer bailouts that sparked furor on both sides of the political aisle.

The low-hanging fruit was a series of standalone proprietary-trading units that were producing almost $5 billion a year for the biggest banks. Firms fairly quickly spun out or shut down legendary money-making teams including Goldman Sachs Principal Strategies and Morgan Stanley’s Process Driven Trading.

The trickier part was crafting regulations that wouldn’t allow banks to carry on proprietary trading within their client-facing desks. Wall Street firms have long argued that the rule went too far in that effort, limiting activities that are legitimately aimed at facilitating buying and selling illiquid bonds for customers or hedging the bank’s own risk. Traders also grumbled that the rules’ “guilty until proven innocent” approach curbed the risk appetite needed in the market, on top of the costs and headaches from compliance efforts and paperwork.

Bank critics pointed to traders who continued to rack up hundreds of millions of dollars in gains in a single year to note that Wall Street desks were far from riskless matchmakers.

“The big banks could already do risky trading by pretending to be market making — these changes will give them more leeway to do so,” said Mayra Rodriguez Valladares, managing principal at New York-based MRV Associates, which trains bank examiners and finance executives.

Harsher capital and liquidity requirements introduced after the crisis have been even more restraining on the trading risks the big banks can take. They will continue to exert pressure even under a softer Volcker rule, Rodriguez Valladares said.

“If they start taking more risk, capital rules should kick in and force them to have more capital backing that risk, so that’s the backup control mechanism,” she said. “We’ll see if that will work as it should.”

The latest revision drops the much-hated “intent” prong for the largest firms. That had forced banks to include all trades that they intended to be short-term to be covered under the rule and required an explanation for each one. JPMorgan Chase & Co. Chief Executive Jamie Dimon famously quipped that each trader would need a psychologist and a lawyer by his side to comply.

As far as regulators are concerned, removing the intent element of the rule won’t have any material effect on which trades are covered. That element was created as a way to distinguish trades that smaller banks carried out, and it now will be applicable only to those smaller banks. The largest lenders already have trades covered under market-risk rules that are connected to their capital requirements.

For years, banks’ complaints fell largely on deaf ears. When President Trump took office in 2017, his administration vowed to relax the complex web of financial rules. That hasn’t always gone smoothly.

The original proposal for Volcker rule changes in 2018 would have expanded the reach of the rule even further, and the big banks pushed back. Several bank officials involved in the discussions said in recent months that they wished the regulators would just drop the revision effort altogether , since more complication seemed just as likely as a big victory.

Even the regulators’ attempt to simplify compliance is unlikely to bring significant cost savings, said the officials, asking not to be identified discussing regulatory matters. The largest Wall Street firms have hired thousands of compliance officers in the last decade in response to tightened regulation following the 2008 crisis, and the Volcker rule is only one of dozens that require more manpower.

Yet there are critics who denounced the changes, saying the softening of the rule gives banks a free hand to increase risk. FDIC board member Martin Gruenberg, a Democrat who ran the agency until a year ago, said the rule has been defanged because many types of financial assets will no longer be covered.

“Gutting the Volcker rule will generate more risk in the banking system,” the Center for American Progress, an advocacy group, said in a statement. “Taxpayers, workers and families will again foot the bill when this toxic mix goes south.”
A modification of the Volcker rule is approved by the OCC and the FDIC. The new version eases rules on proprietary trading by Wall Street banks. Consumer groups criticize the rule change, claiming that it removes protections from taxpayers.