By Ryan Tracy And Scott Patterson
WASHINGTON--The Federal Reserve on Thursday said it would give
banks two more years to sell private equity and hedge fund stakes
covered by the Volcker rule, a win for banks who had requested more
time to unwind positions.
The Fed move effectively extends from July 2015 to July 2017 a
deadline by which banks would have had to sell the fund
investments, which are barred under the rule's restrictions on bank
trading. The move will "reduce the potential disruptive effects
that significant divestitures of covered funds could have on
markets," the Fed said in an order announcing the change.
Since the Volcker rule was adopted a year ago, banks have been
pressing regulators for a multiyear delay of the requirement for
them to pull out of private equity and other funds. Firms such as
Goldman Sachs Group, Inc., Morgan Stanley, and J.P. Morgan Chase
& Co. will benefit from Thursday's news. Goldman alone has
about $7 billion invested in private equity, according to a
November regulatory filing.
The banks were lobbying the Fed to grant a reprieve of up to
seven years, The Wall Street Journal reported in August. The Fed
still has the option to give banks an additional five years for
certain "illiquid" fund investments, but it didn't on Thursday say
whether it would do so.
Congress approved the Volcker restrictions as part of a broader
efforts to force banks to shift away from risky bets that can
potentially trigger large, destabilizing losses.
The restrictions have been one of the more contentious elements
of the Volcker rule. Regulators drafting the rule clashed over how
to define what types of investments would be covered, amid concerns
the rule could be evaded or possibly pull in other, less-risky
investments.
Banks have pressed for more time since many of them hold
thinly-traded assets, such as complex derivatives or real estate
that can be difficult to unwind. Private-equity firms often invest
cash in assets they expect to pay off several years down the
line.
The banks have argued if they are forced to pull out of
investments too quickly the moves could trigger forced selling by
the funds at unfavorable prices, potentially roiling markets and
hurting investors.
Thursday's decision applies to "legacy" investments that were in
place before December 2013.
Write to Ryan Tracy at ryan.tracy@wsj.com and Scott Patterson at
scott.patterson@wsj.com
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