The Federal Reserve has proposed changes to the Volcker rule that would allow banks to invest in venture capital funds and start-up funds, and make it easier to sponsor credit funds that make loans, invest in debt securities, or extend credit.

Federal Reserve Board Chairman Jerome Powell

“We have learned that a simpler, clearer approach to implementing the rule makes it easier for both banks and regulators to carry out the intent of the rule,” Fed Chairman Jerome Powell said Thursday. “We have already taken several steps in that direction and the proposal before us continues that work.”

The Volcker rule, a key component of the post-crisis Dodd-Frank reforms, bars banks from engaging in proprietary trading as well as holding ownership in hedge funds or private equity funds.

Governor Lael Brainard, who has opposed previous changes to the regulation, was the lone vote against the proposal.

“I am concerned that several of the proposed changes will weaken core protections in the Volcker rule and enable banking firms again to engage in high-risk activities related to covered funds,” Brainard said.

Governor Randal Quarles, a Trump-Administration appointee, said it was “inescapable that compliance and enforcement have been difficult and can be simplified for both banking entities and regulators.”

The proposal was also approved by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.

“Since the regulations implementing the Volcker rule were finalized in 2013, the rule has created compliance uncertainty and imposed limits on certain banking services and activities that the Volcker rule was not intended to restrict,” the Fed Board of Governors said in a statement.

“To address these concerns, the agencies simplified requirements for the proprietary trading restrictions in November 2019. Today’s proposal would modify the restrictions for banking entities investing in, sponsoring, or having certain relationships with, covered funds,” the board of governors said in a statement.

The public comment on the proposal closes on April 1.

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