By Rodney F. Tonkovic, J.D.
Five federal regulatory agencies are seeking public comment on proposed amendments to exclude certain community banks from the Volcker Rule. The proposal would reflect statutory amendments to section 13 of the BHC Act modifying the definition of "banking entity." The joint proposal would exclude community banks with $10 billion or less in total consolidated assets and total trading assets and liabilities of five percent or less of total consolidated assets from the Volcker Rule's restrictions (Proposed Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds, Release No. BHCA-5, December 21, 2018).
The Securities and Exchange Commission, Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Commodity Futures Trading Commission have proposed to amend section 13 (the "Volcker Rule") to reflect statutory amendments made by the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). The EGRRCPA modified the definition of "banking entity" to exclude certain small firms from section 13's restrictions and by permitting a banking entity to share a name with a hedge fund or private equity fund that it organizes and offers under certain circumstances.
Community bank exclusion. Specifically, the proposed amendments would exclude community banks with $10 billion or less in total consolidated assets and total trading assets and liabilities of five percent or less of total consolidated assets from the Volcker Rule's restrictions. Prior to the EGRRCPA, "banking entity" encompassed any insured depository institution, or any company controlling one, among other entities. The Act modified the scope of "banking entity" to exclude certain community banks and their affiliates. Foreign banking organizations with a U.S. branch or agency, however, continue to be subject to the Volcker Rule's prohibitions.
The agencies propose to modify the definition of "insured depository institution" in the 2013 final rule to conform to the EGRRCPA amendments. Accordingly, under the proposal an insured depository institution must satisfy two conditions to qualify for exclusion from the definition of "banking entity": the institution, and every entity controlling it, must have (1) total consolidated assets equal to or less than $10 billion and (2) total trading assets and liabilities equal to or less than five percent of total consolidated assets. Because insured depository institutions already monitor their total consolidated assets and total trading assets and liabilities for other purposes, the agencies believe that this test would impose no new burdens.
Name sharing. The proposal would also amend the restrictions applicable to the naming of a hedge fund or private equity fund to permit an investment adviser that is a banking entity to share a name with the fund under certain circumstances. Name sharing in this manner would be subject to the conditions that the investment adviser is not an insured depository institution, a company that controls an insured depository institution, or a company that is treated as a bank holding company under the International Banking Act, and that it does not share the same name or a variation of the same name as one of these entities.
Comments are due within 30 days after publication in the Federal Register.
The release is No. BHCA-5.