Although the Financial Stability Oversight Council (FSOC) released studies and proposals on a host of critical topics, including implementation of the Volcker Rule and identification of systemically important nonbanks, the raft of documents gave little sense of what the final regulations on such issues would look like.

Regulators, for example, signaled they may rely heavily on banks themselves to identify what activities violate the Volcker ban on proprietary trading, saying banks should develop quantitative metrics for their trading, but also left themselves wiggle room to perform tougher oversight during exams.

The council also took the next step in the process for designating nonbank financial companies systemically important, but provided few clues on which firms, exactly, would be targeted. Similarly, the interagency body released a proposal laying out the importance of concentration limits to deter risk within the financial system, but declined to give specifics about what kinds of limitations it might enact.

The documents are "really interesting, thorough analysis and good thinking about these topics, but they don't tell you much about what these rules are going to look like," said Karen Shaw Petrou, managing partner of Federal Financial Analytics.

To some, the Volcker study indicated regulators were moving the industry's direction as they contemplate how to ban proprietary trading. The 81-page study left some key questions unanswered, notably what exactly fits the definition of proprietary trading.

It recommended that banks sell or wind down proprietary trading desks that clearly engaged in impermissible activity. A Treasury Department official said that a bank must go further, however, because proprietary trading does not exist solely on trading desks and may include characteristics similar to certain permitted activities, creating a gray area.

For that gray area, the FSOC recommended that banking entities rely on metrics to monitor and report their proprietary trading. An institution's chief executive would have to certify that such monitoring existed and was sufficient to comply with the intent of the Volcker Rule. The bank would also have to develop a way to identify to regulators which trades are customer-initiated, a permissible activity under the Dodd-Frank law, and to publicly disclose permitted exposures to hedge funds and private equity firms.

Regulators said they were moving cautiously, but appropriately, to work through issues as they implement the Volcker Rule.

"As always, coming out of any crisis, we have to be careful to strike the right balance," Treasury Secretary Tim Geithner said during the FSOC meeting.

But some observers said the study indicated regulators intend to let banks have wide latitude in using the "market-making" exception in the Volcker Rule.

The FSOC recommended, for example, that the length of time a trade is held is not a hard and fast indicator of the risk it poses, and regulators and banks should distinguish trades based on asset classes. The study said that what may be a reasonable, permissible trade in one market in a particular amount of time may be impermissible in another.

Banks "were very concerned their market-making function would be narrowly construed in Volcker," said Douglas Landy, a partner in Allen & Overy and formerly a lawyer at the Federal Reserve Bank of New York. "It looks like that the argument they provided that said you can't say market making is a, b, or c, you have to look at it holistically … it appears that argument has carried the day. … What it's basically saying is there is no one definition of proprietary trading."

A Treasury official acknowledged that "the problem is that there isn't a one-size-fits-all for all trading activity."

But Jaret Seiberg, a financial services policy analyst at MF Global's Washington Research Group, said banks should not relax just yet. He said although regulators appeared ready to allow a wide definition of market-making activity, the study warned they are also focused on an institution's overall risk from their trading. "What this is telling us is they are not going to let you make a mockery of the market-making function to effectively engage in proprietary trading," Seiberg said. "But the regulators also seem to recognize a significance of proprietary trading and do not appear to be looking to restrain that activity."

Seiberg, like others, said the study was a far cry from a proposal or final rule.

"This is only a study, so nobody should rest until there is a proposal and a final rule. Those are what matters," Seiberg said.

During the meeting, Federal Reserve Board Chairman Ben Bernanke said the hard work was still to come.

"This is just a framework, a starting point," Bernanke said. "And I think everyone understands developing the rules and metrics is where the real work is done."

The council also left unanswered questions in its proposal to designate certain nonbanks as systemically risky. Its plan largely echoed an earlier proposal released last year where regulators sought comment on how best to determine which institutions pose an economic threat. Instead, it said it would use six broad categories, such as size, the lack of substitutes for the financial services the company provides, and interconnectedness, in addition to quantitative metrics to determine if a firm is systemically risky.

The FSOC did heed commentators' advice on the need to take into consideration a nonbank's industry when evaluating its systemic risk as well as the various business models present in each sector.

"For example, the metrics that are best suited to measure the six categories of systemic importance likely will differ across industries. The council will review these metrics on a period basis and revise them as appropriate," the proposal said.

Observers said the proposal was significant because it indicated regulators were moving quickly to target nonbank firms. But which firms they are after remained a mystery. "The proposed regulation sets the stage for action. The proposal moves the ball down the field but does not provide us with much insight as to what firms will be caught in the systemic net," said Ernest Patrikis, a lawyer at White & Case.

Tackling a separate, but related issue of concentration limits within the financial services sector, the council acknowledged such limits were important, but did not detail any specifics.

"Limiting the relative size of any single financial firm will limit the adverse effects from the implosion of any single firm for reasons specific to that firm," the council said.

Still, it did not make recommendations regarding exact limits on the maximum size of banks, bank holding companies, and other larger financial institutions, leaving that task up to regulators.

The council is required to conduct follow-up studies every five years, and anticipates once the concentration limit is implemented it would take that information into consideration when it releases its next report in 2016

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