09/14/2012 10:53 am ET Updated Nov 14, 2012

Martin Gruenberg, FDIC Chairman: Volcker Rule To Be Implemented By Year's End


By Alexandra Alper

WASHINGTON, Sept 14 (Reuters) - U.S. authorities are aiming to finalize the Volcker rule's curb on speculative trading by banks by the end of 2012 and are striving to make it simple, regulators said on Friday.

FDIC Acting Chairman Martin Gruenberg told reporters that regulators are sticking with their most recent estimate of approving a final draft by year-end.

"The agencies are working on it. I think that is the intention," he said at the American Banker's regulatory symposium in Washington, D.C.

The U.S. Treasury Department's Under Secretary for Domestic Finance, Mary Miller, promised that the agencies would strive to tackle the rule's complexity.

The Volcker rule, named for former Federal Reserve Chairman Paul Volcker, was mandated by the 2010 Dodd-Frank Act and is aimed at preventing banks from taking risky bets for their own gain rather than on behalf of their customers.

So-called proprietary trading has been blamed by many critics of the industry for the recent financial crisis in which the government provided various backstops and bailout mechanisms to rescue the industry and the larger economy.

The rule, proposed by regulators in October 2011, was slated to be finalized by July 21, 2012. But Federal Reserve Chairman Ben Bernanke said in February it would not be completed by the deadline.

Regulators say the delay stems from differences in how they want the rule to be implemented, as well as an overwhelming volume of feedback from industry groups and the public.

Pro-reform groups have touted it as a much-needed brake on excessive Wall Street risk-taking, but banking groups have said the rule could deeply harm liquidity and make it hard for firms to raise capital.

Both sides in the debate have complained about the complexity of the 300-odd page rule, which could create a compliance nightmare or a series of loopholes, critics say.

But the Treasury's Miller took pains on Friday to say regulators aim to address that concern.

"We will strive for simplicity with Volcker," Miller said, while acknowledging the challenges of drafting a rule that is both simple and able to handle the nuances of the complex U.S. financial system.


One of the most contentious pieces of the Volcker rule is an exemption for trades that aim to help banks hedge risk - a critical function that must be preserved, according to banks.

On Friday, Bart Chilton, a Democratic Commissioner at the Commodity Futures Trading Commission, wrote a letter to Bernanke warning of the danger of an overly permissive hedging carveout.

Unless regulators define hedging in a sufficiently targeted fashion, he wrote, "this exemption could provide a dangerous loophole to necessary and appropriate restrictions on banks' trading activity."

Concerns about the exemption grew in May when JPMorgan Chase & Co revealed that a botched hedging strategy had "morphed" into a risky bet at a London unit that was supposed to be balancing the bank's overall credit exposure, costing the bank at least $5.8 billion.

Once the Volcker rule is in place, banks will have until July 21, 2014, to comply fully.