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Sen. Lincoln Says that Dodd-Frank Bank Push Out Provision Includes Mini-Volcker Rule

By Jim Hamilton

The bank push out provisions of Section 716 of the Dodd-Frank Act essentialy require banks to divest types of derivatives activities considered to carry the greatest risk, while allowing banks to retain the majority of thier low-risk derivatives activities on behalf of customers.

According to Senator Blanche Lincoln, author of the provision, a mini-Volcker rule was incorporated into Section 716. Banks, their affiliates and their bank holding companies would be prohibited from engaging in proprietary trading in derivatives. This provision would prohibit
banks and bank holding companies, or any affiliate, from proprietary trading in swaps as well as other derivatives. This was an important expansion and linking of the Lincoln Rule in Section 716 with the Volcker Rule in Section 619 of Dodd-Frank. (Cong. Record, July 15, 2010, S5922).

Section 716?s effective date is two years from the effective date of the title, with the possibility of a one year extension by the appropriate federal banking agency. Senator Lincoln said that the appropriate federal banking agencies should be looking at the affected banks and evaluating the appropriate length of time which a bank should receive in connection with its push out. Under the revised Section 716, she noted, banks do not have a right to a 24 month phase-in for the push out of the impermissible swap activities. The appropriate federal banking agencies should be evaluating the particular banks and their circumstances under the statutory factors to determine the appropriate time frame for the push out. (Cong. Record, July 15, 2010, S5922).

Full post as published by Jim Hamilton's World of Securities Regulation on August 20, 2010 (boomark / email).