U.S. banks will have two years to implement the so-called Volcker rule so long as they make a “good faith” effort to comply with the ban on proprietary trading.
Banks will get the “full two-year period” provided by the Dodd-Frank financial overhaul law to “conform” their activities and investments, the Federal Reserve and four other U.S. agencies said in a statement. The Fed has the authority to extend the period of compliance beyond July 21, 2014, the regulators said.
“The statement finally makes clear that they can’t be held accountable for compliance with a rule not yet released,” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics, a Washington research firm whose clients have included Wells Fargo & Co. (WFC) (WFC)
The rule, named for its original champion, former Fed Chairman Paul Volcker, is one of the most contentious parts of the Dodd-Frank law that was drafted to help prevent another financial crisis. It’s intended to reduce the chances that banks will put depositors’ money at risk. Banks argue that it is so broad and poorly defined it will force them to leave business lines and could actually increase risks for their clients.
Regulators had signaled that they probably would provide banks more clarity because they wouldn’t finish the rule before the July 21, 2012 implementation deadline.
Fed Chairman Ben S. Bernanke said Feb. 29 that he didn’t think the deadline would be met, and Fed Governor Daniel Tarullo, during a Senate hearing last month, indicated that guidance on the law’s enforcement and scope of the conformance period would be forthcoming.
“During the conformance period, banking entities should engage in good-faith planning efforts, appropriate for their activities and investments, to enable them to conform,” the regulators said in a statement.
The regulators’ decision “is a good step, but not good enough to address the concerns of the legal and compliance departments,” Scott Talbott, chief lobbyist for the Financial Services Roundtable, said in an e-mail. The regulations implementing the rule are “filled with hundreds of unanswered questions that make compliance complicated, if not impossible,” according to Bloomberg.