The Office of the Comptroller of the Currency is asking the public for its views about how the final rule implementing section 13 of the Bank Holding Company Act (commonly referred to as the Volcker Rule) should be revised.

The Volcker Rule was issued by virtue of the Dodd-Frank Wall Street Reform and Consumer Protection Act 2010. It was the brainchild of Paul Volcker, a former chairman of the Federal Reserve who was succeeded in 1987 by the disastrous Alan Greenspan, and its purpose is to restrict American banks from making certain kinds of speculative investments that do not benefit their customers. Volcker blamed much of the financial crisis that begun in 2008 on uncontrolled speculation.

The OCC is not asking for comment on changes to the underlying Volcker statute. A report recently issued by the Department of the Treasury (commissioned by President Trump in executive order 13772) has identified problems with the design of the rule — the inclusion of a 'purpose’ test for defining proprietary trading, for example. The report also contains recommendations for revisions to the final rule.

This report states: "Treasury recommends significant changes to the Volcker Rule, including changes to the statute, regulations and supervision. Undue compliance burdens must be eliminated in order to eliminate unnecessary impact on market liquidity. Treasury supports in principle the Volcker Rule’s limitations on proprietary trading and does not recommend its repeal. Banks with $10 billion or less in assets should not be subject to the Volcker Rule. Treasury also recommends that the proprietary trading restrictions of the rule not apply to banks with greater than $10 billion in assets unless they exceed a threshold amount of trading assets and liabilities. In addition, Treasury advocates simplifying the definition of proprietary trading and allowing banks to more easily hedge their risks and conduct market-making activities. Treasury also recommends changes to the compliance program requirements of the rule in order to decrease regulatory burden.

"Similarly, the covered funds provisions of the rule require modification to decrease unnecessary burdens, including by refining the definition of a covered fund. This change can greatly assist in the formation of venture and other capital that is critical to fund economic growth opportunities. Finally, given the fragmentation of responsibility for implementing the Volcker Rule across five agencies, these agencies should ensure that their guidance and enforcement of the rule is consistent and co-ordinated."

The report also rests on the premise that the sweeping scope of and excess costs imposed by the Dodd-Frank Act have resulted in a slow rate of bank asset and loan growth. The five agencies that the Treasury mentions are the OCC itself, the Federal Reserve, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The OCC's request for public comment, lodged in the Federal Register, complains that many firms have had trouble interpreting and applying some of the Volcker Rule’s provisions. Many have found it too complex and vague. Banks, especially, say that sometimes they cannot tell permissible activities from prohibited ones, suggesting also that the Volcker Rule is 'overbroad' and restricts a number of essential financial functions, some of which could spur economic growth. In particular, firms have suggested that they have been forced to curtail economically useful market-making, hedging, and asset liability management to avoid breaking the proprietary trading prohibition.

The rule’s proprietary trading provisions generally prohibit banks from engaging, as principal, in the short-term trading of certain securities, derivatives, commodity futures and options on these instruments. Its provisions to do with 'covered funds' generally prohibit banks from acquiring or retaining an ownership interest in, sponsoring, or having certain relationships with a hedge fund or private equity fund (i.e. a 'covered fund,' which includes any issuer that would be an investment company under the Investment Company Act 1940 if it were not otherwise excluded by ss3(c)(1) or 3(c)(7) of that Act, as well as certain foreign funds and commodity pools).

The OCC wants to clarify key provisions that define prohibited and permissible activities. It also wants to work out "how the existing rule could be implemented more effectively without revising the regulation." In short, it wants comments on all aspects of the rule. It is, however, especially interested in offering four broad areas for the public’s consideration:

• the scope of entities to which the Volcker Rule applies;
• the proprietary trading restrictions;
• the covered fund restrictions; and
• the "compliance programme and metrics" reporting requirements.

Comments should be submitted by 21st September.