Wall Street is quietly pushing for a long delay in a key provision of the 2010 Dodd-Frank law, one that strictly limits banks’ alternative investments activities.
Part of the controversial Volcker rule sets tough limits on the amount of a bank’s Tier 1 capital that can be invested in hedge funds and private-equity funds, as well as how much of a fund’s capital can come from a bank. Firms have spent the past few years selling or spinning-off alternative investments units to comply with the rule, as well as winding down their own investments in such funds.
That process is supposed to be completed by next summer. But banks, their lobbyists and a number of lawmakers are asking the Federal Reserve to take a much more liberal approach to granting waivers that could give banks an extra seven years to fully comply.
Under Dodd-Frank, the Fed can grant two one-year delays, plus an additional five-year delay for illiquid holdings. Those exemptions are supposed to be granted only if their fund partners refuse to allow their sale.
But banks are complaining that such a circumstance is unlikely, and could lead to fire-sales at depressed prices.
According to The Wall Street Journal, the Fed has appeared receptive to the banks’ concerns. In addition, Wall Street has found some allies on Capitol Hill, with three Democratic Congressman asking the Fed to quickly rule on the matter.
“We think it is important for the Federal Reserve to address this issue promptly so that banking entities can plan how to handle their fund investments,” Reps. Gary Peters (D-Mich.), John Carney (D-Del.) and Dennis Heck (D-Wash.) wrote.