June 25, 2020 / 2:14 PM / 13 days ago

U.S. banking regulators ease rules around firm investments, internal trading

WASHINGTON (Reuters) - U.S. banking regulators on Thursday unveiled new rules that will make life easier for large banks with complex trading and investment portfolios.

One rule wraps up a long-running effort by Republicans to overhaul the so-called “Volcker Rule,” clearing the way for banks to make larger investments in riskier vehicles like venture capital funds.

The second relieves banks of having to set aside cash to safeguard derivatives trades between affiliates within the same firm. It gives a win to big global banks that had lobbied for the relief, and the industry estimates it could free up as much as $40 billion in previously reserved cash.

The Federal Deposit Insurance Corporation, Federal Reserve, Office of the Comptroller of the Currency, Securities and Exchange Commission and the Commodity Futures Trading Commission share responsibility for the Volcker rule. The FDIC, OCC and Fed are primarily responsible for the rules on “inter-affiliate” swaps. Each agency is expected to formally approve the changes.

The rule overhauling the “covered funds” portion of the Volcker Rule wraps up years of work overhauling that central post-financial crisis regulation, which places significant restrictions on a bank’s riskier trading and investment activities. The new rule, largely similar to one proposed in January, opens the door to banks investing in venture capital funds and eases restrictions around when banks are considered owners of funds.

The softer swap rule frees banks from having to set aside funds to protect against derivatives trades made between affiliates of the same firm. The final rule sets a limit on how much inter-affiliate exposure a bank could have without setting aside margin funds of 15% of the firm’s capital.

The latest moves serve as significant victories for the financial industry, which for years had complained about rules they said were onerous, confusing and overly cautious.

Reporting by Pete Schroeder; Editing by Chizu Nomiyama, Jonathan Oatis and Dan Grebler

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