Volcker Rule: Prohibitions on Proprietary Trading, Certain Relationships With Hedge Funds or Private Equity Funds

WASHINGTON, June 4 -- The Federal Deposit Insurance Corporation issued the following financial institution letter:

Summary:

The Federal Deposit Insurance Corporation, Federal Reserve Board, Office of the Comptroller of the Currency, Securities and Exchange Commission, and Commodity Futures Trading Commission (collectively, the Agencies) have requested comment on a proposal that would amend the Volcker Rule to provide banking entities with clarity about what activities are prohibited, improve supervision and implementation of the Rule, and simplify compliance.

Statement of Applicability to Institutions with Total Assets Under $1 Billion: This Financial Institution Letter (FIL) is applicable to all FDIC-insured depository institutions (IDIs) that have, or are controlled by a company that has, $10 billion or more in total consolidated assets or total trading assets and trading liabilities that are more than 5 percent of total consolidated assets. An addendum is included that describes the legislative changes to the Volcker Rule from the Economic Growth, Regulatory Relief, and Consumer Protection Act.

Highlights:

* In general, community banks are not subject to the statutory prohibitions of Part 351 or this notice of proposed rulemaking.

The Proposal would:

* Tailor the application of the Volcker Rule based on the size and scope of trading activities of a banking entity, rather than total consolidated assets.

* Require banking entities with significant trading activities of greater than $10 billion in total trading assets and liabilities (excluding U.S. government obligations) to adopt the six pillar compliance program under Section 351.20 of the proposed Rule and streamline required metrics submissions.

* Allow banking entities with moderate trading activities between $1 billion and $10 billion in total trading assets and liabilities (excluding U.S. government obligations) to adopt a simplified compliance program.

* Grant a presumption of compliance to banks with limited trading activities, defined as less than $1 billion in total trading assets and liabilities (excluding U.S. government obligations), that eliminates the requirement to implement a compliance program under Section 351.20 of the proposed Rule. Banks with limited trading would have no obligation to demonstrate compliance with the Rule on an ongoing basis.

* Require an IDI that has, or is an affiliate of a banking entity that has, moderate or significant trading activity to submit a CEO attestation.

* Retain the current prohibition on covered funds and the related exclusions and exemptions. Retain the 2014 Interim Final Rule on Collateralized Debt Obligations backed by Trust Preferred Securities, which would remain in effect without change.

Continuation of FIL-31-2018

Distribution:

FDIC-Supervised Banks (Commercial and Savings) and FDIC-Supervised Savings Associations

Suggested Routing:

Chief Executive Officer

Chief Financial Officer

Chief Risk Officer

Related Topics:

FIL-62-2013: Statement Regarding CDOs backed by TrUPS under the Rules Implementing Section 619 of the DFA.

Attachments:

Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds Notice of Proposed Rulemaking

Contact:

Michael Spencer, Chief Capital Markets Strategies, at [email protected] or (202) 898-7041; Brian Cox, Capital Markets Policy Analyst, at [email protected] or (202) 898-7007

Note:

FDIC Financial Institution Letters (FILs) may be accessed from the FDIC's website at www.fdic.gov/news/news/financial/2018/.

To receive FILs electronically, please visit www.fdic.gov/about/subscriptions/fil.html.

Paper copies may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275-3342 or 703-562-2200).