FDIC’s Gruenberg says regulators on-track to finalize Volcker Rule by 2013

Bart Chilton

Martin Gruenberg, the acting chairman of the Federal Deposit Insurance Corp., said on Friday that American regulators hope to finalize the controversial Volcker Rule by the end of the year.

Gruenberg said at the American Banker’s regulatory symposium in Washington D.C. that regulators plan to approve a final draft by 2013.

“The agencies are working on it,” Gruenberg said, according to the Chicago Tribune. “I think that is the intention.”

The Volcker Rule, named after Paul Volcker, the former chairman of the Federal Reserve, is mandated under the 2010 Dodd-Frank Act and prohibits banks from engaging in proprietary trading.

The rule was supposed to be finalized by July 21, but Ben Bernanke, the chairman of the Federal Reserve, said earlier this year that regulators would likely miss the rule’s deadline, the Chicago Tribune reports.

U.S. regulatory agencies maintain that the rule’s delay relates to differences in how the rule will be implemented. Some banking groups, however, say that the rule could damage liquidity and make it harder to raise capital.

One of the most controversial aspects of the Volcker Rule is a risk-hedging exemption, which banks say must remain in place. Bart Chilton, a commissioner at the Commodity Futures Trading Commission, however, warned Bernanke in a Friday letter of an overly broad risk-hedging exemption.

Chilton said that unless regulators clearly define hedging, “this exemption could provide a dangerous loophole to necessary and appropriate restrictions on banks’ trading activity,” according to the Chicago Tribune.

Concerns regarding the exemption only increased when JPMorgan Chase & Co. announced in May that a flawed hedging strategy had caused the bank to lose $5.8 billion.

After the Volcker Rule is finalized and implemented, banks will have until July 21, 2014, to come into compliance with the mandate, the Chicago Tribune reports.

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