Statement on Amendments to the Volcker Rule “Covered Fund” Provisions

We must begin by thanking staff from across the SEC.  This rulemaking was a momentous undertaking, with teams in the Divisions of Investment Management, Economic and Risk Analysis, and Trading and Markets, as well as the Office of General Counsel working under often challenging circumstances to bring it to fruition.  Further thanks go to our colleagues in the three federal banking regulatory agencies and the Commodity Futures Trading Commission, with whom our staff collaborated to formulate these final amendments.  We would be remiss if we did not also thank Chairman Jay Clayton for his invaluable leadership throughout this process.  It is a better rule for his efforts. 

The regulations implementing the Volcker Rule, since their adoption in 2013, have needed amendments like the ones we are adopting today.  As originally formulated, the implementing regulations were overly broad; prohibited domestic banking entities from engaging in traditional banking activities that did not implicate the concerns underlying the rule and imposed disproportionate burdens on funds outside the United States.  Bank customers paid the price in the form of inhibited access to capital. 

Drawing on our experience with the implementing regulations and the thoughtful comments we received, the amendments we are voting on today bring useful clarity and surgically correct the regulations’ deficiencies while staying true to the Volcker Rule’s original objectives and remaining consistent with its mandates.  The amendments, among other things, make it possible for banking entities to extend credit and provide other traditional banking services using a fund structure, facilitate venture capital activity, remove barriers to banking entity investments in rural and low-income communities, enable banking entities to provide traditional banking services to funds, clarify the parameters pursuant to which banking entities can invest alongside the funds they organize, and limit the extraterritorial reach of the rule.  These changes are intended (1) to ensure that banks can serve their customers efficiently and (2) to facilitate the flow of credit to the places in the economy that need it most.  Not only are such corrections long overdue, but they could not be more timely, considering the hardship so many businesses now face because of the pandemic and government lockdown orders.

It is worth noting that the relief could have gone further.  For example, commenters supported the idea, noted in the proposal, of excluding long-term investment vehicles from the definition of covered funds, in order to facilitate economic growth.  The recommendation today does not take up this suggestion.  While we understand the complexities of inter-agency rulemaking efforts, and the compromises they entail, we will continue to consider the treatment of long-term investment vehicles and remain open to hearing any additional suggestions for further improving the regulations implementing the Volcker Rule.    

In closing, we thank the staff of the SEC who have brought all their expertise and experience to bear on this final rule and commend our colleagues across the other agencies for the same.  This final rule is another step in the process of freeing banks to play their unique role in fueling economic growth, while respecting the purposes of the Volcker Rule.  We hope that there will be future opportunities to consider additional amendments that will facilitate innovation and capital formation, particularly in underserved areas of the country.