Daily Times

US banking regulators Thursday unveiled a pair of rules that will make life easier for large banks with complex trading and investment portfolios.

One rule wraps up a long-running effort by Republicans to overhaul the so-called “Volcker Rule,” clearing the way for banks to make larger investments in riskier funds like venture capital funds.

The second relieves banks from having to set aside cash to safeguard derivatives trades between affiliates within the same firm. The move hands a win to big global banks that had lobbied for the relief, as industry estimates it could free up as much as $40 billion in previously reserved cash.

The rules were jointly unveiled by regulators on Thursday, with each agency expected to formally approve them.

The rule overhauling the “covered funds” portion of the Volcker Rule wraps up years of work overhauling that central post-financial crisis regulation, which places significant restrictions on a bank’s riskier trading and investment activities. The new rule, largely similar to one proposed in January, opens the door to banks investing in venture capital funds, and eases restrictions around when banks are considered owners of funds.

The softer “inter-affiliate” swap rule frees banks from having to set aside funds to protect against derivatives trades made between affiliates of the same firm. The final rule did add to the September proposal, setting a limit on how much inter-affiliate exposure a bank could have without setting aside margin funds of 15% of the firm’s capital.

The pair of moves serve as significant victories for the financial industry, which for years had complained about rules they said were onerous, confusing and overly cautious.

However, the moves adopted on Thursday may also be some of the last significant deregulatory projects under an industry-friendly administration, as President Donald Trump is up for re-election in November.

Wall Street recoups losses

Wall Street’s main indexes were largely flat on Thursday, as gains in financial and energy shares helped recoup early losses on an alarming rise in new coronavirus cases and elevated jobless claims.

All three indexes briefly turned positive in the session, a day after posting their worst day in two weeks.

“It appears that the market may have entered into a new stage of needing direction. It doesn’t seem that the worries over a virus resurgence are enough to truly start forming a down leg of a W-shaped recovery,” said JJ Kinahan, chief market strategist at TD Ameritrade.

“But without some new catalyst to give market participants some optimism, stocks might not be able to move much higher either.”

Spikes in novel US coronavirus cases will likely trigger closures in some places but not a nationwide shutdown, White House economic adviser Larry Kudlow said, as a number of states posted a record rise in infections.

Meanwhile, data showed the number of Americans filing claims for unemployment benefits fell less than expected last week likely as hiring by reopening businesses is being partially offset by a second wave of layoffs.

The resurgence in virus cases across the United States threatened to halt a Wall Street rally that was powered by a raft of global stimulus since late March.

After coming within 5% of its record high in early June, the benchmark S&P 500 has lost nearly 6% in the past two weeks and analysts cautioned further declines amid worsening economic forecasts.

At 10:53 a.m. ET, the Dow Jones Industrial Average was down 1.73 points, or 0.01%, at 25,444.21, the S&P 500 was down 0.99 points, or 0.03%, at 3,049.34. The Nasdaq Composite was down 0.56 points, or 0.01%, at 9,908.61.

Wall Street’s fear gauge, the CBOE volatility index, rose to 34.52 points.

The S&P banks subindex rose 1.7% as US banking regulators unveiled a pair of rules that will make life easier for large banks with complex trading and investment portfolios.

After markets close, the Federal Reserve will release the stress test results for the lenders.

The energy sector gained about 0.9%, as oil prices recovered.

Utilities and industrials posted the steepest declines among major S&P sectors.

Walt Disney Co fell 2% after it delayed the reopening of theme parks due to the health crisis. A report also said the company was considering postponing the July 24 release of “Mulan”.

Boeing Co tumbled 2.4% as rival Airbus reached a crucial jetliner production target and smoothed recent industrial problems.

Berenberg also reduced its rating on the US planemaker’s shares to “sell”, noting elevated near-term risks linked to the pandemic, the pace of recovery in air travel and uncertainty related to production rates.

Declining issues outnumbered advancers for a 1.19-to-1 ratio on the NYSE.