WASHINGTON — U.S. regulators have taken a major step toward reining in high-risk trading on Wall Street, banning the largest banks from trading for their own profit in most cases.
It took three years to write and adopt the Volcker Rule, one of the most critical changes to financial laws in the wake of the 2008 banking crisis.
The Federal Reserve and the Federal Deposit Insurance Corp., the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Office of the Comptroller of the Currency each voted Tuesday to adopt it.
The final version is stricter than many had expected. Its goal is to reduce the kind of trades that nearly toppled the financial system five years ago and required taxpayer-funded bailouts.
At its heart, the rule seeks to ban banks from almost all proprietary trading. The practice of trading for their own profit has been very lucrative for big banks like JPMorgan Chase, Bank of America and Citigroup. The rule also limits banks' investments in hedge funds.
But the 920-page rule contains several exemptions that allow banks to continue proprietary trading in some instances. That raises questions about whether the government can completely limit extreme risk-taking in a complex financial world.
Congress instructed regulators to draft the Volcker Rule under the 2010 financial overhaul law. It was a high-priority proposal for President Barack Obama and named after Paul Volcker, a former Fed chairman who was an adviser to Obama during the financial crisis.
On Tuesday, Obama praised regulators for adopting a rule that ensures "big banks can't make risky bets with their customers' deposits."
Regulators won't begin enforcing the rule until 2015. The largest banks will be required to show next year how they are taking steps toward compliance.