Banks will get guidance on Volcker rule: Fed

A Federal Reserve official sought on Thursday to reassure banks that they would get clarity on how to comply with the Volcker rule's ban on proprietary trading, even if a final rule governing the crackdown were not completed by a July deadline. "There is obviously a real possibility that we don't meet the July 21st date," Fed Governor Daniel Tarullo told a Senate Banking Committee hearing.
"If we are not going to, I think it is incumbent on all the regulators to provide some guidance for firms to let them know exactly what the expectations will be and not let this hang out there as an unknown, and I think we should be able to do that if needed," he said.
Banks have raised concerns that if a final rule were not ready by July 21, there could be disruptions in various markets because of a lack of clarity on how to comply with the new trading crackdown. The proprietary trading ban is known as the Volcker rule after former Federal Reserve Chairman Paul Volcker who championed the crackdown. It was included in the 2010 Dodd-Frank financial reform law.
The Volcker rule bans banks from trading with their own funds and greatly limits their ability to invest in hedge and private equity funds. Regulators issued a proposed Volcker rule in October - but it was roughly 300 pages, with hundreds of questions for public comment, indicating the final version could look significantly different.
The financial community complained that it was too complex and too vague, especially for a reform set to go live in July of this year. Republican Senator Mike Crapo on Thursday told regulators that he has introduced legislation along with two other Republicans and three Democrats that would delay implementation of the Volcker rule until release of a final rule.
But Tarullo told Crapo he did not think legislation was needed. Tarullo said the guidance should be enough and noted that there is a two-year conformance period and that the Fed can provide more clarity on what regulators will expect during this time frame as well. "I think we can deal with both issues here without legislation and we will try to go ahead and do so," Tarullo said. Acting Comptroller of the Currency John Walsh told the committee that the current July deadline can be a positive because it is motivating regulators to work quickly.