US lawmakers have reached an agreement on an overhaul of the US financial system that will see a compulsory registration of private equity firms with the Securities and Exchange Commission and banks’ exposure to the asset class capped.
The bill will be formally voted on next week and sees the so-called Volcker rule softened. The rule - named after the ex-chairman of the Federal Reserve, Paul Volcker – initially called for banks to be prevented from investing in alternative funds altogether.
However, under the House and Senate’s agreement, hammered out overnight, banks will now be allowed to invest three per cent of their Tier 1 capital in such funds.
The regulatory crackdown on private equity firms and banks’ freedom to invest in funds is part of a wider Wall Street reform designed to prevent another crisis in which financial institutions are prone to toppling due to liquidity constraints.
The move to curtail bank investment in private equity and ensure firms register with the SEC, President Obama said, will “help prevent another financial crisis like the one that we’re still recovering from”.
Obama commended lawmakers for reaching an accord through the night and said the Volcker rule was one of many measures in the legislative reform that will “make sure that banks protected by the safety net of the Federal Deposit Insurance Corporation can’t engage in risky trades for their own profit”.
(Source: AltAssets)
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