Roundtable Weekly
The Fed and FCIC Vote to Simplify and Ease Volcker Rule
June 1, 2018

A proposal to simplify and ease the Volcker Rule, which restricts proprietary trading practices at banks and is enforced by five separate federal agencies, was unanimously approved this week by both the Federal Reserve and Federal Deposit Insurance Corp. (FDIC). (Roundtable Weekly, May 25)

The Fed's proposal is part of a broader regulatory rollback.  (“ The Volcker Rule’s Proposed Revision Could Add Liquidity To CMBS ” – GlobeSt, May 31)

  • The nearly 400-page proposal, known as Volcker 2.0, would seek to simplify regulatory requirements by giving banks new quantitative “bright-line rules” to provide more clarity on what activities are prohibited and permitted. The Fed proposal is part of a broader regulatory rollback, which includes the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) that included Roundtable-supported revisions to the Basel III High Volatility Commerical Real Estate (HVCRE) Rule
  • For CRE, the Volcker Rule has put a damper on secondary market trading of commercial mortgage backed securities (CMBS) by limiting the ability of banks to hold inventories of secondary market securities, thereby diminishing market liquidity.  In addition to restricting banks from buying certain securities for their own accounts (so-called proprietary trading), it also has prohibited them from investing in hedge or private-equity funds – including real estate.  (“ The Volcker Rule’s Proposed Revision Could Add Liquidity To CMBS ”  – GlobeSt , May 31)
  • Real Estate Roundtable President and CEO Jeffrey DeBoer commented on the Volker Rule proposal. “This positive action will benefit liquidity and the commercial mortgage backed securities market, potentially increasing investment in job-creating construction activities," DeBoer said.
  • One of the most significant changes in the Volcker 2.0 proposal would give banks more latitude by making it easier for them to show they are trading to help clients — a permitted activity known as market making  — rather than proprietary trading .
  • In a memorandum to the Fed's Board of Governors, Fed Vice Chairman for Supervision Randall Quarles details the changes in the proposal .
  • In a January 2012 comment letter  to the Federal Reserve and other financial regulatory agencies, the Roundtable raised concerns about the unintended consequences of the Volcker Rule that could "negatively impact liquidity and capital formation in commercial real estate."

The Fed and its regulatory partners are seeking public comment on its Volcker rule reform proposals. The Roundtable plans to work with its Real Estate Capital Policy Advisory Committee (RECPAC) to submit comments before a final rule is expected to be in effect by January 1, 2019.