Regulators Exempt Small Banks from Volcker Rule

Chris Gaetano
Published Date:
Jul 10, 2019
A group of five financial regulators have released a joint final rule that exempts small banks from the crisis-era Volcker Rule that was implemented as part of the Dodd-Frank Act. The regulators include the Federal Reserve Board, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of Currency, and the Securities and Exchange Commission. Together, they first proposed the changes a little more than a year ago

Under the Volcker rule, banks are generally prohibited from engaging in proprietary trading (engaging as principal for the trading account of the banking entity in any purchase or sale of one or more financial instruments), and any financial instrument held by a banking entity for fewer than 60 days (or that substantially transfers risk within 60 days of the purchase or sale) is presumed to be for proprietary trading. 

The new rules allow banking entities to be exempt from Volcker Rule requirements if they meet two conditions: first, the insured depository institution, and every entity that controls it, must have total consolidated assets equal to or less than $10 billion. Second, total consolidated trading assets and liabilities of the insured depository institution, and every entity that controls it, must be equal to or less than five percent of its total consolidated assets. This is consistent with the changed definition of a "banking entity" made with the passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which was signed into law last year. 

A bank or savings association seeking to determine its eligibility for the exclusion may use its most recent quarterly Consolidated Report of Condition and Income (call report) as the source of data for its consolidated assets and its total trading assets and liabilities at the bank or savings association level. Similarly, a banking organization may use the most recent filing of the Board’s FR Y-9C by its holding company as the source of data about the consolidated assets and total trading assets and liabilities of the companies controlling the bank or savings association. All entities that seek to rely on the community bank exclusion should assure themselves that all affiliated banks or savings associations and holding companies satisfy the total consolidated assets and trading asset and liability thresholds.  

Responding to critics that felt this was not a good idea, the five agencies noted that they will continue to examine community banks that are exempt from the Volcker Rule for compliance with applicable laws and regulations, including the requirement under applicable banking laws and regulations that they operate in a safe and sound manner. 

Click here to see more of the latest news from the NYSSCPA.