In separate remarks delivered before the annual Washington meeting of the Institute for International Bankers on March 11, FDIC Chair Jelena McWilliams and Comptroller of the Currency Joseph Otting both said that the federal financial regulatory agencies are actively considering revisions to the Volcker Rule regulations, including a reconfiguration of the interagency Volcker Rule regulatory proposals published in June 2018. Ms. McWilliams, among other things, indicated that “all options are on the table," and stated that the federal agencies “need to right size the rule's extraterritorial scope while also minimizing competitive inequities between U.S. banking entities and their foreign counterparts…” with a particular focus on foreign funds.

Mr. Otting, for his part, referred to upcoming meetings with Senate leaders to discuss, among other things, possible Volcker Rule regulatory changes. Both officials acknowledged prior industry concerns with aspects of the 2018 rule proposal, in particular the proposal to remove the subjective intent test for proprietary trading and replace it with a more objective test based on accounting practices and principles; as Mr. Otting noted, the new test would capture trading activity that was not proprietary in nature, and that the federal agencies were discussing how to address this issue.

The federal financial regulatory agencies’ struggles over changes to the Volcker Rule regulations is part of a continuing pattern of agency challenges in implementing a complex and opaque statutory framework. While Ms. McWilliams spoke optimistically about Volcker Rule changes, expressing her belief that “we can get this right and do so promptly,” past experience indicates that changes to the Volcker Rule will come about slowly. This is due in no small part to the fact that five federal financial regulatory agencies are responsible for administering the Volcker Rule, making agreement on regulatory changes more difficult to achieve, particularly on a short-term basis, coupled with the complexity of the statutory scheme. Therefore, the fact that the federal financial agencies have identified a need to retool the 2018 regulatory proposals suggests to us that any final changes to the Volcker Rule regulations may be some time in coming. Notably, the June 2018 proposal offered very few concrete changes to the “covered funds” prohibitions of the Volcker Rule, although the proposing release asked several hundred questions on possible changes to this part of the regulations, thus virtually assuring another round of proposed, not final, rules on the subject.

The primary takeaway from these developments is that while the agencies appear to agree that further revisions to the Volcker Rule framework are needed, any regulatory changes will occur slowly. And, on the congressional front, we do not see any realistic possibility in the near future of further statutory changes to the Volcker Rule, given the current composition of Congress, let alone the potential impact of the approaching 2020 presidential election.