- Wall Street regulators are expected to release an update to the Volcker Rule, a key regulation implemented in the wake of the 2008 financial crisis.
- The rule prevents banks from using their own funds the make the type of risky investments that contributed to the collapse of the financial system in 2008.
- The updated rule, dubbed "Volcker 2.0," is expected to clarify which short-term investments banks can make with their own money and to what extent banks can invest in hedge funds and private equity firms, according to Bloomberg.
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One of the biggest regulations put in place after the 2008 financial crisis is expected to get a major overhaul.
Wall Street regulators are set to approve an update to the Volcker Rule, a section of the Dodd-Frank Wall Street Reform and Consumer Protection Act that prevents banks from using their own funds to make risky, short-term investments. The rule also prohibits banks from purchasing ownership stakes in hedge funds or private equity firms.
The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. are expected to give their seal of approval on a revamp of the rule on Tuesday, according to Bloomberg. The updated rule, dubbed "Volcker 2.0," is expected to simplify which types of trading and short-term investments banks can make with their own funds.
The new policy will also clarify limits placed on banks’ investments in hedge funds and private equity firms, Bloomberg reported. Volcker 2.0 is largely seen as a response to Wall Street’s complaints that the initial policy was too complex and cumbersome to comply with.
Three other regulators still need to review and approve the update including the Federal Reserve, the Securities and Exchange Commission, and the Commodity Futures Trading Commission. The agencies are expected to introduce more changes to make it easier for banks to identify which types of investing the initial policy was supposed to cover, according to Bloomberg.
The Volcker rule was named after former Federal Reserve Chairman Paul Volcker, and was fully implemented on April 1, 2014. Last year, current Fed Chairman Jerome Powell voted to advance a proposal to ease the limits included in the Volcker rule and to reduce the cost for banks to comply with it.
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