Banks will have two more years to divest themselves of private equity and hedge funds to comply with a Dodd-Frank Wall Street Reform and Consumer Protection Act provision known as the Volcker rule.
The Federal Reserve Board announced Thursday that it will give banks until July 21, 2016, to sort out those investments, and said it would act next year to grant an additional one-year extension to July 21, 2017.
Dodd-Frank authorized the Federal Reserve to extend the original July 2014 deadline up to three years, one year at a time. In April, the board said it would extend the deadline related to banks’ activities with collateralized loan obligations.
“Today’s action is consistent with the board’s previous announcement regarding CLOs and extends the conformance period for other types of legacy covered funds,” the Federal Reserve said in a statement Thursday. The board said it consulted with other regulators, including the Securities and Exchange Commission, in granting the extensions.
Securities Industry and Financial Markets Association President and CEO Kenneth E. Bentsen Jr. said in a separate statement that the additional time “will allow for a more orderly process as banking entities restructure their covered funds activities and investments,” but added that “many important clarifications remain to be made.”
“The Fed recognizes that a rush to divest from funds is likely to negatively impact the market,” said James Maloney, spokesman for the Private Equity Growth Capital Council. “Private equity funds generally make long-term, illiquid investments, and if a bank is invested in a fund, appropriate exit time should be granted in order to minimize market disruption.”