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Lawmakers seek more covered funds exclusions as part of Volcker changes

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WASHINGTON — Seven Republicans on the Senate Banking Committee are asking regulators to include more revisions to the definition of “covered fund” as they are in the process of rewriting the Volcker Rule.

The senators, including Chairman Mike Crapo, R-Idaho, said the covered fund definition should be revised, with additional exclusions to address the “overly-broad” application of the rule to venture capital, other long term investments and loan creation, and recommendations outlined in a 2017 Treasury Department report.

“As a general matter, any activity permissible for a banking entity to do directly, especially those that provide stable capital and encourage economic growth, should be permissible through a fund structure as well,” the senators said in a letter to the heads of the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

Referencing recent comments from Fed Chairman Jerome Powell, the lawmakers noted that “these permissible activities do not threaten safety and soundness and themselves are subject to a comprehensive regulatory framework that imposes various requirements and limitations to address inherent risks.”

The letter, dated Oct. 1, comes as Fed Vice Chairman of Supervision Randal Quarles, FDIC Chair Jelena McWilliams and Comptroller Joseph Otting prepare to testify in front of the Senate Banking Committee on Tuesday regarding the implementation of a regulatory relief package passed last spring.

Shortly after the legislation was signed into law in May, the regulators unveiled proposed changes to the Volcker Rule. But the senators noted in their letter that the regulators have proposed “few changes” to the Volcker Rule’s covered funds provision, which includes entities banks are prohibited from investing in.

Quarles said in a speech in March that the definition of covered fund should be “as simple and clear as possible” and that it shouldn’t “require hours of legal analysis of complex banking and securities regulations to determine if a particular entity is a covered fund.”

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Volcker Rule Regulatory relief Mike Crapo Randal Quarles Jelena McWilliams Joseph Otting Senate Banking Committee Federal Reserve FDIC OCC