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Volcker Rule Could Wait Until 2022

Financial Reform Obama

Huffington Post   First Posted: 06/29/10 09:49 AM ET Updated: 05/25/11 05:55 PM ET

With supporters and opponents of the much-debated financial reform bill emphasizing the urgency of the moment, one crucial component of the legislation may be delayed for years.

Bloomberg News reports this morning that banks could be given until 2022 to implement the so-called Volcker Rule, which would force the nation's largest banks to reduce their investments in private equity and hedge funds.

Proposed by former Federal Reserve Chairman Paul Volcker, the rules were originally intended to stop banks from using taxpayer-backed cash to speculate in the financial markets. The measures were softened in the conference committee process. As HuffPost's Shahien Nasiripour pointed out, the final language allows banks to invest up to 3 percent of their Tier 1 capital in private equity and hedge funds. JPMorgan Chase, for example, could use $4 billion of its cash to speculate in the markets.

The rules wouldn't take effect until 15 months after passage, Bloomberg News reports, but with particularly hard-to-sell securities like real estate holdings, banks could be granted extensions until 2022.

As Goldman Sachs Group analyst Richard Ramsden put it, "While this may lead to further surprises down the line, we see this as important, as financial institutions have time to adapt their business models."

The changes in the final Volcker Rule language were backed by a last-minute change of heart by the Treasury Department, TPM reports. The loophole, pushed by Sen. Scott Brown (R-Mass.), whose support was seen as crucial in the vote-counting process, allows banks to invest in outside hedge funds.

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