The Volcker Rule’s Proposed Revision Could Add Liquidity To CMBS

Lisa Pendergast

WASHINGTON, DC–The Federal Reserve proposed revisions to the Volcker Rule on Wednesday.

The Volcker rule, which is part of the Dodd-Frank Act, prohibits banking entities from engaging in proprietary trading and from owning or controlling hedge funds or private equity funds. The Fed noted in its request for comments that the complexity of the rule has led to confusion about how to implement it. “The proposal will address some of the uncertainty and complexity that now make it difficult for firms to know how best to comply, and for supervisors to know that they are in compliance,” Chairman Jerome H. Powell said.

Constrained Market-Making

The CRE Finance Council has maintained that the the Volcker Rule is one of several regulations that has led to constrained secondary market-making. In an alert published in response to yesterday’s proposal the association noted that “in its current form, the Volcker Rule impinges upon the ability of banks to hold requisite inventories of secondary market securities, including commercial mortgage-backed securities, thereby damaging market liquidity.”