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Consultation could be beginning of the end for Volcker

The OCC’s investigation could be the first step in dismantling the regulation that restricts a bank’s ability to invest in private equity.

A bank regulator is to launch a public consultation on how the Volcker Rule is working, in what could be the first step in dismantling the regulation.

The Office of the Comptroller of the Currency, which oversees US national banks, will consult with those affected by the rule limiting a bank’s private equity investments to 3 percent of Tier 1 capital.

Speaking to Congress in June, Keith Noreika, acting head of the OCC, said the Volcker Rule provides a “practical example” of how conflicting messages and inconsistent interpretation can “exacerbate the regulatory burden by making industrial compliance harder and more resource intensive than necessary.”

The OCC will conduct the consultation without the help of the other four regulators that co-wrote the rule, although any revisions would have to be agreed by all five under current law.

Opinions that the Volcker Rule is “imperfect” and needs simplification have emerged from various quarters within the Trump administration and beyond. The Treasury Department recommended in June that the current definition of covered funds – in which bank investments are restricted – was too broad, while ex-Federal Reserve governor Daniel Tarullo said there was scope to reform the rule because it is “damaging market-making activities” at banks during his exit interview.

A number of economists maintain it is a useful tool for managing systemic risk.

The Financial Stability Oversight Council discussed “recommendations” on the rule during a closed-door meeting on Friday, but no details have emerged. It is the second time the rule has been discussed by the group in the past three months, as reported by pfm.

Last week, the Federal Reserve Board issued guidance on a two-year extension available to banks divesting seeding investments to private equity or hedge funds.