The Treasury Department’s guidance on the Volcker Rule, published this week, says regulators can allow banks to offer “feeder funds” for customers to invest in private equity and hedge funds. But it also encourages regulators to eliminate loopholes that banks might try to use to get around restrictions on their direct private equity and hedge fund investments.
The 81-page report, released Tuesday by the department’s Financial Stability Oversight Council, fulfills a requirement of the Dodd-Frank financial reform law, which will ultimately be enforced by the Federal Reserve, the FDIC and other federal agencies. The report offers only a general discussion of the Volcker Rule, a provision of the law that bans banks from proprietary trading, as well as from making investments in third-party private equity and hedge funds. Another key requirement of the law: Banks can commit no more than 3 percent of their core, “Tier One” capital, to their own sponsored private equity and hedge funds, nor can they provide more than 3 percent of the commitments to such funds.