Feds prepare tougher rules for banks

Federal regulators are poised to approve a tougher-than-expected version of the so-called Volcker Rule, adopting a harder line in recent weeks against Wall Street risk-taking, according to a copy of the rule reviewed by The New York Times.

The rule, which comes to a vote on Tuesday, is a symbol of the Obama administration’s post-financial-crisis crackdown on Wall Street. In particular, it bans banks from trading for their own gain, a practice known as proprietary trading.

In doing so, the Volcker Rule takes aim at the sort of risk-taking responsible for a $6 billion trading blowup last year at JPMorgan Chase. The bank claimed it was trading to hedge its broader risks, but instead built a position that racked up large profits before spinning out of control.

To prevent such blowups, the rule will require banks to deploy “independent testing designed to ensure that the positions, techniques and strategies that may be used for hedging may reasonably be expected to demonstrably reduce” the risks, according to the version reviewed by The Times. And the risks, the rule says, must be “specific, identifiable” rather than theoretical and broad.

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