Fed VP Calls for Volcker Rule Streamlining

Randy Quarles, Federal Reserve’s Vice Chairman of Supervision
Randy Quarles, Federal Reserve’s Vice Chairman of Supervision

The head regulator for the Federal Reserve called for more streamlining of the Volcker.

Randy Quarles, the Federal Reserve’s Vice Chairman of Supervision, was testifying in front of the Senate Banking Committee, as part of his regularly scheduled bi-annual report on his department.

The Chairman of the Committee, Republican Mike Crapo from the State of Idaho, cheered what he called Quarles philosophy of streamlining and simplicity.

“I was particularly encouraged by Vice Chairman for Supervision Quarles in January, the overarching objectives of his agenda are efficiency, transparency and simplicity of regulation.” Crapo noted.

As part of that agenda, Crapo said this included “streamlining the Volcker rule.”

In his written testimony, Quarles described how he would streamline the Volcker rule.

“Let me turn to the Volcker rule. Many within and outside of the industry have said that this is an example of a complex regulation that is not working well. While the fundamental premise of the rule is simple, the implementing regulation is exceedingly complex. Our fellow regulators are working actively with the Federal Reserve in seeking ways to further tailor implementation of the Volcker rule and to reduce burden, particularly for firms that do not have large trading operations and do not engage in the sorts of activities that may give rise to proprietary trading.

“Also,with regard to large financial institutions, last year we issued for comment a proposal that would simplify the Board’s ratings system by reducing the number of ratings. The proposed ratings system would be better aligned with the Board’s post-crisis supervisory program for large financial institutions, which will allow us to target our supervisory messaging to those areas of greatest concern.

“Our simplification efforts have, of course, also extended to our supervision and regulation of smaller community banks. For example, in its continuing efforts to reduce data reporting and other burdens for small financial institutions, the U.S. banking agencies implemented a new streamlined Call Report form for small financial institutions in 2017. Applicable to financial institutions with less than $1 billion in total assets, the streamlined reporting form removed approximately 40 percent of the nearly 2,400 data items previously included. The agencies have also proposed further streamlining of this Call Report. The cumulative effect would implement burden-reducing revisions to approximately 51 percent of the data items previously reported by small banks.”

The Volcker rule, named after former Fed Chair Paul Volcker, forbids banks from engaging in “proprietary trading”- or trading in their own account.

FEDIt has become a flashpoint because opponents argue that its implementation has been burdensome, especially on community banks who do relatively little trading, and it encroaches on banks’ legitimate market making activities, like in corporate bonds.

As Quarles noted, he intends to reduce the burden on community banks with small trading operations.

Earlier this month, the House of Representatives passed a bill to consolidate regulatory power of the Volcker rule in the Federal Reserve, meaning that Quarles will have enormous power in its implementation.

Quarles position was created as part of Dodd/Frank but then President Obama never appointed Vice President for Supervision.

Quarles was nominated by President Trump to this position on July 10, 2017 and his nomination was approved by the Senate on October 5, 2017.