Fed Adopts Final Rule for Conformity with the Volcker Rule

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On Wednesday, February 9, 2011, the Board of Governors of the Federal Reserve System (the “Board”) announced its adoption of a final rule concerning the period of time that banking entities and nonbank financial companies supervised by the Board have to comply with the new section 13 (the “Volcker Rule”) of the Bank Holding Company Act of 1956 (the “BHC”), as added by Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). As enacted on July 21, 2010, the Volcker Rule generally prohibits banking entities – broadly defined to include banks, parents of banks and subsidiaries and affiliates of either of them – from engaging in proprietary trading in securities, derivatives, or certain other financial instruments, and from investing in, sponsoring, or having certain relationships with a hedge fund or private equity fund. The Volcker Rule further permits the Board or other agencies to impose restrictions, such as capital charges or quantitative limits, on nonbank financial companies supervised by the Board.

The Volcker Rule will go into effect upon the earlier of (i) 12 months after the agencies issue final rules regarding section 13(b)(2) of the BHC Act and (ii) July 21, 2012. However, the Volcker Rule also provides institutions with time, after the Volcker Rule’s effective date, to conform their activities and investments to the law’s restrictions. Generally, each entity subject to the Volcker Rule is given two years to comply with it once it becomes effective, but the discussion of the availability of extensions is the most interesting aspect of the final rule. The Board’s final rule will be effective April 1, 2011. It is similar in most respects to the proposed rule issued for comment in November 2010.

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Published In: Administrative Agency Updates, Finance & Banking Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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