The federal banking agencies, along with the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission, have issued final rules to implement Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, also known as the Volcker Rule (Final Rule). The Volcker Rule generally prohibits any banking entity from engaging in proprietary trading or acquiring or retaining an ownership interest in, sponsoring, or having certain relationships with a hedge fund or private equity fund (covered fund), subject to certain exemptions.
Statement of Applicability to Institutions with Total Assets Under $1 Billion: This Financial Institution Letter is applicable to all banks regardless of asset size. An addendum is included that describes how the rule would typically apply to smaller, less complex banking entities.
The Final Rule:
Prohibits banking entities from engaging in proprietary trading, unless otherwise permitted by the Final Rule.
Prohibits banking entities from acquiring or retaining any ownership interest in, or sponsoring, a hedge fund or private equity fund, except to the extent permitted by the Final Rule.
Prohibits banking entities from engaging in a permitted activity if (i) it would involve a material conflict of interest or material exposure to high-risk trading strategies, or (ii) pose a threat to safety and soundness.
Provides exemptions for certain permitted activities including, but not limited to, trading on behalf of customers, trading in government obligations, market-making activities, risk-mitigating hedging strategies, and organizing and offering a covered fund including limited investments in such funds.
Provides exclusions from the definition of proprietary trading for certain activities subject to conditions.
Provides exclusions from the definition of covered fund, including, but not limited to, loan securitizations, wholly owned subsidiaries, bank-owned life insurance, and public welfare investment funds.
FDIC-Supervised Banks (Commercial and Savings)