Regulators agree to revisit 'Volcker Rule'

Financial regulators are considering a fresh exemption to the “Volcker Rule” just weeks after they finalized the long-awaited crackdown on risky trading.

Facing a legal challenge from banks, the Federal Reserve and other Wall Street watchdogs on Friday said they were reviewing whether it would be appropriate to exempt a small subset of securities from the rule. A final decision will be announced by Jan. 15.

Industry groups have threatened to sue the government if the exemption is not granted.

The specific type of security at stake is what is known as trust-preferred securities, which are often grouped and packaged into collateralized debt obligations. Such securities were often sold to smaller banks in the run-up to the financial crisis.

Those smaller institutions have complained that the Volcker Rule, which is aimed at curbing big banks, could have unintended and harmful consequences for them.

On Monday, the American Bankers Association sent a letter to regulators warning that if that type of investment was not exempted from the rule, it would sue.

Regulators capped years of work on the Volcker Rule earlier this month by unveiling a final set of regulations. Wall Street reform groups were heartened by the tough implementation, but industry groups cried foul, calling the rule overly restrictive.

The Volcker rule, a central piece of the Dodd-Frank financial reform law, is aimed at preventing banks from making risky proprietary trades with their own funds for profit. The final rule emerged after regulators worked for years and pored over tens of thousands of public comments.