Bank stocks surge after regulators ease financial crisis-era Volcker Rule
- Bank stocks surged on Thursday after financial regulators announced they would ease the financial crisis-era Volcker Rule.
- The Volcker Rule generally prohibited banks from engaging in proprietary trading and from having certain relationships with hedge funds and private equity funds.
- The rule change will provide banks greater flexibility in sponsoring funds that provide loans to companies, allowing investments in qualifying venture capital funds.
- JPMorgan, Bank of America, Goldman Sachs, Citigroup, and Wells Fargo all traded up more than 3% on the news.
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Bank stocks surged as much as 3% on Thursday after federal regulators rolled back the Volcker Rule, a financial crisis-era rule that restricted banks from operating proprietary trading units and from acquiring or retaining ownership stakes in hedge funds or private equity funds.
The Federal Deposit Insurance Corporation, Federal Reserve Board of Governors, Office of the
Comptroller of the Currency, Securities and Exchange Commission, and Commodity Futures Trading
Commission issued a final rule on Thursday "to modify and clarify the covered fund provisions" of the rule, according to the news release.
The rule change, according to the regulators, will do three things:
1. Facilitate capital formation by providing banking entities greater flexibility in sponsoring funds that provide loans to companies so banks can allocate resources to a more diverse array of long-term investments.
2. Protect safety, soundness and financial stability by not allowing banks to engage in any activity that is not currently permissible if conducted on their balance sheets.
3. Provide greater clarity and certainty about what activities are permitted, which will improve supervision and implementation of the Volcker Rule.
According to Bloomberg, the rule change will free up as much as $40 billion for the banks.
In a statement on the rule change, Rob Nichols, president and CEO of the American Bankers Association said, "We welcome the measured steps taken today by the FDIC, which will allow banks to further support the economy at this challenging time for the nation."
Shares of JPMorgan, Bank of America, Goldman Sachs, Citigroup, and Wells Fargo all traded up more than 3% on the news in Thursday afternoon trades.