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Volcker Rule

Published December 10, 2013

On December 10, 2013, the Federal Deposit Insurance Corporation approved the "Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds," part of the Dodd-Frank Act commonly known as the Volcker Rule.

Excerpt from memorandum:

Recommendation: Staff recommends that the FDIC Board approve the attached final rule to implement section 13 of the Bank Holding Company Act ("BHC Act"), as enacted by section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 13 of the BHC Act, commonly referred to as the "Volcker Rule," contains certain prohibitions and restrictions on the ability of banking entities to engage in proprietary trading and restricts the ability of banking entities to hold certain investments in, and have certain relationships with, hedge funds and private equity funds. For purposes of section 13, the term "banking entity" includes all insured depository institutions ("IDIs"), irrespective of size, companies controlling IDIs, companies treated as bank holding companies, and any affiliate or subsidiary of the foregoing. However, it is expected that the primary impact will be on a limited number of larger, more complex banking entities that are actively engaged in the trading and fund activities covered by the statutory prohibitions and restrictions as implemented by final rule. If approved, the final rule will be issued jointly by the FDIC, the Board of Governors of the Federal Reserve System ("Federal Reserve Board"), the Office of the Comptroller of the Currency ("OCC"), the Securities and Exchange Commission ("SEC") and the Commodity Futures Trading Commission ("CFTC") (collectively, the "Agencies"). The final rule will be incorporated into the FDIC's codified regulations as part 351 and will have an effective date of April 1, 2014. However, banking entities have a conformance period of up to two years from the statutory effective date to fully conform their activities and investments to the requirements of the final rule; this conformance period can be extended by the Federal Reserve Board for at least one additional year based on certain statutory criteria. Staff expects that the additional year will be granted to the conformance period, which would provide banking entities until July 21, 2015, to fully conform to the requirements of this final rule.

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