Stocks Storm Back In The Green After Regulators Ease Volcker Rule Ahead Of Stress Test Results

With stocks sinking this morning, they got another helping hand from authorities at 10am when Bloomberg reported that the Office of the Comptroller of the Currency and the FDIC are have approved changes to the Volcker Rule, further easing its provisions, and allowing banks to increase their dealings with certain funds by providing more clarity on what’s allowed. The OCC also scrapped a requirement that lenders hold margin when trading derivatives with their affiliates, according to Bloomberg.

As Bloomberg notes, the revisions will complete what watchdogs appointed by President Donald Trump have referred to as Volcker 2.0 – a softening of one of the most controversial regulations included in the 2010 Dodd-Frank Act.

The Fed is expected to sign off on the proposals later today, perhaps when it announces the results from the latest stress test which may show that banks are limited in how many dividends they can dole out, but most likely won’t do anything to limit distributions to shareholders: after all the Fed has to make the rich even richer.

Separately, a reversal of the interaffiliate margin requirement for swaps trades could free up an estimated $40 billion for Wall Street banks, though regulators added a new speed bump that limits the scale of margin that can be forgiven.

While stocks promptly rewarded this indirect capital boost, some asked if this wasn’t actually a bearish signal for latent banking system problems..

Not sure if the Fed’s latest move actually sends a bearish signal that there is trouble in the US banking system that they need to address $USD pic.twitter.com/0kr0VxmI48

— Viraj Patel (@VPatelFX) June 25, 2020

… on the other hand, with the report hitting just hours before today’s stress test results, most market participants saw this as an all clear signal from the Fed and promptly sent financials surging…

… and the overall market back in the green.