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Regulators: Banks Have Until July 2014 To Comply With Volcker Rule We Haven't Written Yet

This article is more than 10 years old.

Former Fed Chairman Paul Volcker. (Image credit: Getty Images via @daylife)

The Volcker Rule, or section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, sets out to restrict banks from engaging in certain forms of activities and investments, chiefly proprietary trading.

In a joint statement Thursday, the Federal Reserve's Board of Governors, CFTC, FDIC, Office of the Comptroller of the Currency and SEC clarified that entities subject to the rule have a two-year period from its effective date to come under compliance with its specifications. Essentially, the statement says that banks and other financial institutions have until July 21, 2014 "to fully conform their activities and investments to the requirements." Sounds simple right?

Wrong, because the final Volcker rule still hasn't been written and regulators are still considering the thousands of comments submitted in favor or opposition of its stipulations. (Thursday's statement did say that the Federal Reserve Board could extend the conformance period if necessary.)

Plenty has been made of the potential impact of regulation on the banking sector. Wall Street firms have been vocal critics of the Volcker Rule and other portions of Dodd-Frank. JPMorgan Chase's Jamie Dimon has repeatedly criticized what he believes to be a lack of consideration for how various new regulatory standards domestically and overseas will interact with each other, most recently raising the issue in his annual letter to shareholders.

Thursday's clarifying statement from regulators gives visibility on the compliance deadline, but offers little in the way of signaling what the final rule may look like, an issue that is still being fought out behind the scenes. One thing appears clear, from the recent batch of bank earnings including the most recent numbers from Bank of America and Morgan Stanley: banning proprietary bets will make the big firms more subject to the ebbs and flows of the market and the economy. (See "Say Goodbye To Blockbuster Bank Earnings.")

That won't be a bad thing if it prevents a 2008-style blowup, but if it holds back banks from greasing the skids of economic growth by lending to businesses and consumers, and still doesn't eliminate the next big bubble, will it be worth it?

See the statement from regulators below:

Volcker Rule Conformance Period Clarified

Washington, DC - The Federal Reserve Board on Thursday announced its approval of a statement clarifying that an entity covered by section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the so-called Volcker Rule, has the full two-year period provided by the statute to fully conform its activities and investments, unless the Board extends the conformance period.  Section 619 generally requires banking entities to conform their activities and investments to the prohibitions and restrictions included in the statute on proprietary trading activities and on hedge fund and private equity fund activities and investments.

Section 619 required the Board to adopt rules governing the conformance periods for activities and investments restricted by that section, which the Board did on February 9, 2011.  Subsequently, the Board received a number of requests for clarification of the manner in which this conformance period would apply and how the prohibitions will be enforced.  The Board is issuing this statement to address this question.

The Board’s conformance rule provides entities covered by section 619 of the Dodd-Frank Act a period of two years after the statutory effective date, which would be until July 21, 2014, to fully conform their activities and investments to the requirements of section 619 of the Dodd-Frank Act and any implementing rules adopted in final under that section, unless that period is extended by the Board.

The Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and the Commodity Futures Trading Commission (the agencies) plan to administer their oversight of banking entities under their respective jurisdictions in accordance with the Board’s conformance rule and the attached statement.  The agencies have invited public comment on a proposal to implement the Volcker rule, but have not adopted a final rule.