Banking Agencies Issue Final Rule Excluding Community Banks from Volcker Rule

On July 9, 2019, five federal regulatory agencies—the Board of Governors of the Federal Reserve, CFTC, FDIC, OCC, and SEC (collectively, the Agencies)—issued a final rule concerning the exclusion of community banks from the Volcker Rule.  The final rule, which implements the Agencies’ proposed rule from February 9, 2019 without change, will be effective upon publication in the Federal Register.

Section 13 of the Bank Holding Company Act of 1956 (BHC Act), also known as the Volcker Rule, prohibits any banking entity from engaging in proprietary trading or acquiring or retaining an ownership interest in, sponsoring, or having certain relationships with a hedge fund or private equity fund, subject to certain exceptions.  The final rule implements certain amendments under the Economic Growth, Regulatory Relief, and Consumer Protection Act (Economic Growth Act), enacted in May 2018, which modified the definition of “banking entity” to exclude certain community banks from the restrictions of the Volcker Rule. 

In implementing the above exclusion, the final rule amends the definition of “insured depository institutions” that are subject to the BHC Act’s prohibitions to exclude an insured depository institution if it, and every company that controls it, has: (1) total consolidated assets of $10 billion or less; and (2) total consolidated trading assets and liabilities that are five percent or less of total consolidated assets. 

The final rule also implements an additional amendment under the Economic Growth Act by permitting a hedge fund or private equity fund sponsored by a banking entity to share the same or similar name as a banking entity that is an investment adviser to the fund as long as certain conditions are met.

For more information on the proposed rule, please see WBK’s federal industry news article dated January 10, 2019.