A few double negatives buried in legislative text may have inadvertently freed nearly all U.S. banks from a regulation known as the Volcker Rule, which sought to curb risky behavior in response to the 2008 financial crisis.
The text in question comes from a package bill passed in May that pared back portions of the Dodd-Frank post-crisis financial regulatory framework. One of the many provisions of the bill offered an exemption from the Volcker Rule to smaller community banks that policymakers felt were burdened by the regulation, which limited banks’ proprietary trading, or trading for their own accounts.
But sources tell Yahoo Finance that some of the largest U.S. banks are now thinking about challenging the interpretation of that May legislation in court, arguing that the bill could be read as also extending regulatory relief to banks far above $10 billion in assets.
If they succeed, this alternative interpretation could free nearly all U.S. banks from a heavily scrutinized post-crisis regulation that some see as an important safeguard against excessive risk-taking but one that opponents criticize as poorly designed and unduly burdensome.
‘And’ or ‘Or’
In the spring of 2018, a number of moderate Senate Democrats teamed up with Senate Banking Committee Chair Mike Crapo (R-Idaho) and the Republican majority to pass a package bill paring back portions of Dodd-Frank, arguing that some of the rules placed an undue burden on smaller financial institutions.
One of those provisions exempted smaller banks from the Volcker Rule. A summary of the bill promises “community bank relief” to banking entities that have “(1) less than $10 billion in total consolidated assets, and (2) total trading assets and trading liabilities that are not more than five percent of total consolidated assets.”
That would already exempt about 97% of the 5,473 U.S. banks and thrifts from the Volcker rule, S&P Global Market Intelligence reported in March.
The summary appears to communicate that a bank needs to meet both standards in order to get the exemption, but some larger banks are focused on a number of double negatives in the fully amended text that could cloud its interpretation.