Community banks gain Volcker Rule exclusion

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Five federal financial regulatory agencies have adopted a guideline excluding community banks from the Volcker Rule.

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The Volcker Rule generally restricts banking entities from engaging in proprietary trading and from owning, sponsoring, or having certain relationships with hedge funds or private equity funds.

The action is consistent with the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule is being issued by the Federal Reserve Board, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Securities and Exchange Commission.

Under the final rule initiated by the regulatory agencies, community banks with $10 billion or less in total consolidated assets and total trading assets and liabilities of 5 percent or less of total consolidated assets gain exclusion.

The exclusion also permits a hedge fund or private equity fund, under certain circumstances, to share the same name or a variation of the same name with an investment adviser, as long as the adviser is not an insured depository institution, a company that controls an insured depository institution or a bank holding company.

Under the statute, authority for developing and adopting regulations to implement the prohibitions and restrictions of section 13 of the Bank Holding Company Act (BHC) is shared among the five agencies, which recently proposed amendments to the rules to provide clarity about what activities are prohibited and improve supervision and implementation of the BHC Act.

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