The Real Deal New York

Volcker Rule reform could boost CMBS: trade group

Fed proposal would make it easier for banks to trade
By Konrad Putzier | May 31, 2018 06:02PM

Jerome Powell, Chairman of the Board of Governors of the Federal Reserve System (Credit: Getty Images)

On Wednesday, the Federal Reserve proposed loosening rules that limit banks’ trading activities, and it didn’t take long for the real estate industry to cheer the move.

In a statement, the CRE Finance Council, which represents the commercial real estate finance industry, lauded the proposed changes to what it called “burdensome regulations.”

Making it easier for banks to trade stocks and bonds will also make it easier for them to hold commercial mortgage backed securities, the trade group argued, which would improve “market liquidity.”

“This is an excellent example of policymakers recognizing a significant regulatory inefficiency in the system and addressing it,” CREFC’s executive director Lisa Pendergast said.

The Fed’s proposed changes concern the Volcker Rule, which was enacted by federal regulators in the wake of the 2008 financial crisis and prohibits banks that take retail deposits from using their own money to trade in stocks and bonds, unless certain criteria are met. Under the proposed changes, banks no longer have to prove that trades aren’t just speculative, the New York Times reported. Banks would get more freedom to decide which trade they can make.

Former Fed chair Paul Volcker, the rule’s namesake, welcomed the proposal — with a caveat. “What is critical is that simplification not undermine the core principle at stake — that taxpayer-supported banking groups, of any size, not participate in proprietary trading at odds with the basic public and customers’ interests,” he told the Times.