U.S. ban on high-risk bank trades approved

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WASHINGTON (AP) — U.S. banks will be barred in most casesfrom trading for their own profit under a
federal rule approvedTuesday.The Federal Reserve and the Federal Deposit InsuranceCorp. each unanimously
voted to adopt the so-called Volcker Rule, takinga major step toward preventing extreme risk-taking on Wall
Street thathelped trigger the 2008 financial crisis.Three other regulators were expected to follow suit
Tuesday.Congress instructed regulators to draft the rule under the 2010 financial overhaul law.The rule was
agreed to after three years of drafts, debates and lobbying by Wall Street banks.Thefinal version is
stricter than many had expected and are intended toprevent risky trading that required taxpayer-funded
bailouts during thecrisis. But the rule still provides some exemptions.At its heart,the rule seeks to ban
banks from almost all proprietary trading. Thepractice of trading for their own profit has been very
lucrative for bigbanks like JPMorgan Chase, Bank of America and Citigroup. The rule alsolimits banks’
investments in hedge funds.Still, the finalversion allows proprietary trading when it is done to facilitate
buyingand selling investment for customers. That is known as market-making.Alsoexempted from the ban are
cases when a bank underwrites a securitiesoffering, and for trading in U.S. government, state and local
bonds.Theother three agencies voting for the rule include the Securities andExchange Commission, the
Commodity Futures Trading Commission and theTreasury Department’s Office of the Comptroller of the
Currency.Thelargest U.S. banks — those with $50 billion or more in assets— will berequired to fully comply
with the terms of the rule by July 2015.Other banks will have until 2016 to comply.Thebiggest banks will
also be required to have compliance programsapproved by their boards and senior executives. Banks will have
to beginreporting on the status of those programs starting next year.Thebanks’ CEOs also will have to
certify in writing to regulators that thebanks have strong processes in place to ensure compliance.Therule
is named after Paul Volcker, a former Fed chairman who was anadviser to President Barack Obama during the
financial crisis.Therule "has the important objective of limiting excessive risk-taking bydepository
institutions," current Fed Chairman Ben Bernanke said in astatement.Big banks had reaped huge profits
by takingextraordinary risks. But when those trades went bad during the crisis —especially after a wave of
mortgage defaults — many of these banks wereon the verge of collapsing. Most survived only because the
governmentrescued them with taxpayer-funded bailouts.The big Wall Streetbanks lobbied strenuously against
the Volcker Rule. They argued that theban could prevent them from market-making on behalf of customers
orlimiting risks.Drafting the rule became very complicated.Regulators found it difficult to identify what
constitutes proprietarytrading in a bank’s day-to-day operations.For example, banks often engage in
market-making.Andthen there’s what’s called portfolio hedging. That’s when the bankmakes trades on its own
account to hedge, or offset, the risks of abroad investment portfolio — as opposed to the risks of
individualinvestments. It can be hard for regulators to distinguish whenmarket-making and portfolio hedging
cross over into proprietary trading.Copyright 2013 The Associated Press. All rightsreserved. This material
may not be published, broadcast, rewritten orredistributed.

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