With contributions by Maria Wolvin and Ben Marsico.
Updated Oct. 17.
In this week’s roundup, we look at a new rule finalized by five federal agencies that simplifies Volcker Rule compliance requirements for banking organizations.
Meanwhile, Congress will hold multiple hearings on topics related to the finance industry, including stock buybacks and the opportunity zone program.
Agencies Finalize Volcker Rule Overhaul
Five federal financial regulatory agencies announced last Tuesday they have adopted revisions that simplify Volcker Rule compliance requirements for banking organizations.
In a joint announcement made on Oct. 8, the Federal Reserve and the Commodity Futures Trading Commission joined the Securities and Exchange Commission, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency in adopting a revised version of the Volcker Rule that implements new compliance requirements that will take effect Jan. 1, 2020 and be compulsory the following year.
The revisions continue to prohibit proprietary trading while providing greater clarity and certainty for activities allowed under the law. With the changes, the agencies expect that the universe of trades that are considered prohibited proprietary trading will remain generally the same as under previous iterations of the rule.
The Volcker Rule was passed in 2013 to prevent banks from using their own capital in proprietary trading practices that contributed to the 2008 financial crisis. But after five years, the agencies in charge of enforcing the Volcker Rule faced mounting pressure from banks to alter it.
In July 2018, the agencies published their proposed revisions to the Volcker Rule and requested comment. A final rule was announced in 2019 and first adopted by the FDIC and OCC in August. The SEC adopted the rule in September.
Long-considered to be overly burdensome, the original compliance requirements for the Volcker Rule imposed a broad set of restrictions on banks of all sizes. This “one-size-fits-all” method of enforcement, opponents say, negatively and unnecessarily impacts economic growth and capital formation. The revisions are expected to create more clarity for market participants, while still maintaining the original intent of the rule.
As regulators continue to look at ways of clarifying and tailoring the Volcker Rule, it is expected that they will revisit the “covered funds” requirements, which dictates that banks generally may not invest in private equity and hedge funds. The July 2018 rulemaking posed the question of whether the agencies responsible for the Volcker Rule should revisit the definition of a covered fund, which ACG encouraged in its comment letter explaining that middle-market private equity funds do not have the characteristics the rule was intended to prohibit, and should therefore not be included in the definition of a covered fund.
Focus on Stock Buybacks Could Draw Attention to Dividend Recaps
The topic of Thursday’s meeting of the House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets will center around stock buybacks, but conversation could shift to dividend recapitalizations following leveraged lending concerns.
Stock buybacks have been criticized by Democratic presidential candidates, some of whom have pledged to end the practice if they are elected to the nation’s highest office.
While the focus of the Oct. 17 hearing is expected to center on stock buybacks, recent attention on leveraged lending could could steer lawmakers’ focus to dividend recapitalizations.
House Committee to Address Opportunity Zone Concerns
The Committee on Small Business Subcommittee on Economic Growth, Tax, and Capital Access will hold a hearing Thursday entitled, “Can Opportunity Zones Address Concerns in the Small Business Economy?”
The hearing, scheduled for Oct. 17, will explore how small businesses and local economic development are impacted by the opportunity zone investment program, which was created by the Tax Cuts and Jobs Act.
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Benjamin Glick is ACG Global’s marketing and communications associate.