US lawmakers take input over Volcker Rule

This week a newly created US supervisory board began public consultation over pending rules to limit banks’ relationship with private equity firms.

Mandated by the recently signed Wall Street Reform and Consumer Protection Act (Dodd-Frank), the Financial Stability Oversight Council is taking comment from industry leaders over the so-called Volcker rule.

The Volcker rule, named after former Federal Reserve chairman and current chair of President Obama’s Economic Recovery Advisory Board, Paul Volcker, imposes new restrictions on the ability of banks to invest in or sponsor private equity and hedge funds.

Under the rule, banks must limit investment in private equity to no more than 3 percent of their Tier 1 capital, with an additional restriction from acquiring more than a 3 percent ownership stake in any fund.

The Dodd-Frank Act, which was signed into law by President Obama 21 July, requires the council to complete a study no later than six months after the bill’s enactment.

Upon completion of the study, which will help guide regulators over final details of the Volcker Rule, financial supervisory agencies will have nine months to implement the rule’s final language.

The consultation period “offers industry participants an important first bite at the apple in helping shape the rules that will govern the actual application of the Volcker Rule”, according to a statement from US-based law firm Dechert.

The council is seeking public opinion on 12 topics, including risk-reduction goals set out by Congress, how to define key terms in the rule and the implications of applying the rule to banks operating outside the US.

Comments and input will be taken until 5 November of this year.