Financial Institution Letter
FIL-58-2013
December 12, 2013
Volcker Rule
Prohibitions on Proprietary Trading and Certain Relationships with Hedge Funds
and Private Equity Funds
Summary: The federal banking agencies, along with the U.S. Securities and Exchange Commission and
the Commodity Futures Trading Commission, have issued final rules to implement Section 619 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act, also known as the “Volcker Rule” (Final
Rule). The Volcker Rule generally prohibits any banking entity from engaging in proprietary trading or
acquiring or retaining an ownership interest in, sponsoring, or having certain relationships with a hedge
fund or private equity fund (covered fund), subject to certain exemptions.
Statement of Applicability to Institutions with Total Assets Under $1 Billion: This Financial
Institution Letter is applicable to all banks regardless of asset size. An addendum is included that
describes how the rule would typically apply to smaller, less complex banking entities.
Distribution:
FDIC-Supervised Banks (Commercial and Savings) Highlights
The Final Rule:
Prohibits banking entities from engaging in proprietary
trading, unless otherwise permitted by the Final Rule.
Prohibits banking entities from acquiring or retaining any
ownership interest in, or sponsoring, a hedge fund or
private equity fund, except to the extent permitted by the
Final Rule.
Prohibits banking entities from engaging in a permitted
activity if (i) it would involve a material conflict of interest
or material exposure to high-risk trading strategies, or (ii)
pose a threat to safety and soundness.
Provides exemptions for certain permitted activities
including, but not limited to, trading on behalf of
customers, trading in government obligations, market-
making activities, risk-mitigating hedging strategies, and
organizing and offering a covered fund including limited
investments in such funds.
Provides exclusions from the definition of proprietary
trading for certain activities subject to conditions.
Provides exclusions from the definition of covered fund,
including, but not limited to, loan securitizations, wholly
owned subsidiaries, bank-owned life insurance, and
public welfare investment funds.
Suggested Routing:
Board of Directors
Chief Executive Officer
Chief Financial Officer
Chief Risk Officer
Related Topics:
Dodd-Frank Wall Street Reform and Consumer
Protection Act
Bank Holding Company Act
Attachments:
Restrictions on Proprietary Trading and Certain
Relationships with Hedge Funds and Private Equity
Funds
Fact Sheet: The Volcker Rule
The Volcker Rule: Community Bank Applicability
Contact:
Bobby Bean, Associate Director, Capital Markets
Branch, at bbean@fdic.gov or (202) 898-6888
Karl Reitz, Chief, Capital Markets Strategies, at
kreitz@fdic.gov or (202) 898-6888
Michael Spencer, Senior Policy Analyst, at
michspencer@fdic.gov or (202) 898-6888
Note:
FDIC Financial Institution Letters (FILs) may be
accessed from the FDIC's Web site at
www.fdic.gov/news/news/financial/2013/index.html.
To receive FILs electronically, please visit
http://www.fdic.gov/about/subscriptions/fil.html.
Paper copies may be obtained through the FDIC's
Public Information Center, 3501 Fairfax Drive, E-
1002, Arlington, VA 22226 (1-877-275-3342 or
703-562-2200).
Federal Deposit Insurance Corporation
550 17th Street NW, Washington, D.C. 20429-9990
FIL-58-2013
December 12, 2013
Volcker Rule
Prohibitions on Proprietary Trading and Certain Relationships with Hedge Funds
and Private Equity Funds
Summary: The federal banking agencies, along with the U.S. Securities and Exchange Commission and
the Commodity Futures Trading Commission, have issued final rules to implement Section 619 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act, also known as the “Volcker Rule” (Final
Rule). The Volcker Rule generally prohibits any banking entity from engaging in proprietary trading or
acquiring or retaining an ownership interest in, sponsoring, or having certain relationships with a hedge
fund or private equity fund (covered fund), subject to certain exemptions.
Statement of Applicability to Institutions with Total Assets Under $1 Billion: This Financial
Institution Letter is applicable to all banks regardless of asset size. An addendum is included that
describes how the rule would typically apply to smaller, less complex banking entities.
Distribution:
FDIC-Supervised Banks (Commercial and Savings) Highlights
The Final Rule:
Prohibits banking entities from engaging in proprietary
trading, unless otherwise permitted by the Final Rule.
Prohibits banking entities from acquiring or retaining any
ownership interest in, or sponsoring, a hedge fund or
private equity fund, except to the extent permitted by the
Final Rule.
Prohibits banking entities from engaging in a permitted
activity if (i) it would involve a material conflict of interest
or material exposure to high-risk trading strategies, or (ii)
pose a threat to safety and soundness.
Provides exemptions for certain permitted activities
including, but not limited to, trading on behalf of
customers, trading in government obligations, market-
making activities, risk-mitigating hedging strategies, and
organizing and offering a covered fund including limited
investments in such funds.
Provides exclusions from the definition of proprietary
trading for certain activities subject to conditions.
Provides exclusions from the definition of covered fund,
including, but not limited to, loan securitizations, wholly
owned subsidiaries, bank-owned life insurance, and
public welfare investment funds.
Suggested Routing:
Board of Directors
Chief Executive Officer
Chief Financial Officer
Chief Risk Officer
Related Topics:
Dodd-Frank Wall Street Reform and Consumer
Protection Act
Bank Holding Company Act
Attachments:
Restrictions on Proprietary Trading and Certain
Relationships with Hedge Funds and Private Equity
Funds
Fact Sheet: The Volcker Rule
The Volcker Rule: Community Bank Applicability
Contact:
Bobby Bean, Associate Director, Capital Markets
Branch, at bbean@fdic.gov or (202) 898-6888
Karl Reitz, Chief, Capital Markets Strategies, at
kreitz@fdic.gov or (202) 898-6888
Michael Spencer, Senior Policy Analyst, at
michspencer@fdic.gov or (202) 898-6888
Note:
FDIC Financial Institution Letters (FILs) may be
accessed from the FDIC's Web site at
www.fdic.gov/news/news/financial/2013/index.html.
To receive FILs electronically, please visit
http://www.fdic.gov/about/subscriptions/fil.html.
Paper copies may be obtained through the FDIC's
Public Information Center, 3501 Fairfax Drive, E-
1002, Arlington, VA 22226 (1-877-275-3342 or
703-562-2200).
Federal Deposit Insurance Corporation
550 17th Street NW, Washington, D.C. 20429-9990