Debunking De-banking As The Answer To The ‘Volcker Rule’

In a recent issue of Private Equity Insider, Ropes & Gray banking practice co-leader Mark Nuccio was quoted on financial institution strategy in response to the expected financial reform legislation. The bill currently contains a provision being called the ‘Volcker Rule,’ which would essentially prohibit bank holding companies, banks and their respective affiliates from engaging in proprietary trading, investment in and sponsorship of hedge funds and private equity funds, and limit relationships with hedge funds and private equity funds. 

There has been speculation that financial institutions might attempt to sidestep the ‘Volcker Rule’ by de-banking and being regulated as a non-bank company. Regarding this proposed strategy Nuccio commented, “Companies that opted into holding-company status might have wanted to get out from under bank-holding company status. But the new law will subject those who de-register to continued regulation by the Federal Reserve, albeit with customized rules to be determined.”

Nuccio and banking practice co-leader Alan Priest are closely following the legislation and its implications.