A top Federal Reserve official said Monday that a rule designed to keep banks from making risky trades with their own capital is "not working well," adding to signs that firms like JPMorgan Chase & Co. (JPM) - Get Report and Goldman Sachs Group Inc. (GS) - Get Report could see further relief from regulations imposed in the wake of the 2008 financial crisis.
The Volcker rule -- named after former Federal Reserve Chairman Paul Volcker, who championed the measure in the wake of the crisis -- is "exceedingly complex" and should be revamped, Randal Quarles, the Fed's vice chairman for supervision, said Monday in a speech. The problem, he said, was that banks have a hard time determining which trades might run afoul of the provision.
"It should not be a guessing game or require hours of legal analysis," he said. "We expect this process will proceed with dispatch."
Under the rule, banks are allowed to buy trading assets from clients as long as the transactions are deemed "not to exceed reasonably expected near-term demands of clients," Quarles said. The measure is designed to keep banks from making big proprietary bets on markets that might later sour and lead to big losses. Lawmakers wrote the rule into the 2010 Dodd-Frank Act to keep banks from racking up such large losses that they might have to be bailed out, require assistance from the Federal Deposit Insurance Corp. or borrow emergency funds from the Fed.
"We want banks to be able to engage in market making and provide liquidity to financial markets with less fasting and prayer about their compliance with the Volcker rule," Quarles said.
The comments by Quarles are in keeping with a broader push by President Donald Trump -- and his appointees -- to roll back regulations on the financial industry, on the theory that doing so will make it easier for banks to provide financing to clients and thus stimulate the economy.
Quarles, a former banking-industry lawyer and private-equity executive who was appointed last year, made the comments at a conference in Washington organized by the Institute of International Bankers, a lobbying group for foreign banks with operations in the U.S.