According to a recent government estimate, the Dodd-Frank Act's ban on proprietary trading and limits on hedge fund investments is expected to cost U.S. national banks approximately $1 billion for compliance and capital.
The impact analysis report, conducted by the Office of the Comptroller of the Currency, estimated that the Volcker rule, proposed by the Federal Reserve, the FDIC and two other regulators, would result in $917 million in capital costs for the banks, Bloomberg reports.
The Dodd-Frank Act bans banks from investing more than three percent of their Tier 1 capital in private equity and hedge funds. Banks must also deduct aggregate investments in the funds from their Tier 1 capital under the law.
Under terms of Dodd-Frank, 152 national banks are allowed to have a combined maximum investment in funds of $18.3 billion, the 14 page OCC analysis says. The cost of capital, the OCC estimates, would be five percent for a maximum overall cost of $917 million.
Legal and compliance costs of approximately $50 million would hit 2,096 national banks, the OCC analysis reported, according to Bloomberg, with most of those costs falling on national banks with at least $1 billion in trading accounts or investments in private equity or hedge funds.
The OCC's analysis was produced under a 1995 law that requires some agencies to produce an impact statement before publishing a rule if the rule could result in at least $100 million in annual expenditures by the private sector.