In a win for Wall Street banks, the latest effort to overhaul the post-crisis Volcker Rule is moving toward a narrower and clearer definition of what types of trades are prohibited, said people familiar with the matter.

Regulators appointed by President Donald Trump took a first stab last year at toning down Volcker’s trading limits, which were meant to prevent bankers from threatening the financial system. However, bankers blasted the revamp, arguing it might make it even harder for firms to buy and sell securities. In response to that criticism, the watchdogs are now focused on erasing the 2018 proposal’s centerpiece -- known among regulators as the “accounting prong” that would have determined which trades are banned.

A less onerous method embedded in the original Volcker has become the favored replacement for the accounting test, said three people who asked not to be named because an expected rewrite hasn’t been completed. Senior officials at the five federal agencies revising Volcker met April 16 to discuss the new direction, the people said. The change would be an unmistakable victory for megabanks, which have been lobbying to weaken Volcker ever since its inclusion in the 2010 Dodd-Frank Act.

Spokesmen for the federal agencies involved declined to comment.

The original rule was meant to prevent lenders with federally backed deposit insurance from suffering huge trading losses, as they did before the 2008 financial crisis. Named for its advocate, former Federal Reserve Chairman Paul Volcker, the rule prohibits proprietary trading -- the practice of banks betting on markets with their own capital. Transactions are perfectly fine if they’re executed on behalf of clients.

But detractors say confusion over which short-term trades pass muster has made banks too cautious, prompting a retrenchment from certain assets that -- according to much-debated research -- could dry up liquidity when markets are under stress.

Getting Wall Street relief from Volcker has been a top priority for Treasury Secretary Steven Mnuchin and other administration officials. While it’s unclear how soon that will happen, re-writing last year’s proposal could delay the process by months.

In their 2018 proposal, known as Volcker 2.0, the Fed and other agencies sought to give more certainty over which trades are permitted by introducing the accounting prong. It would have forced banks to apply accounting standards to certain transactions, and if the firms experienced sharp enough gains or losses, the trades would be presumed to be violating Volcker.

Banks ripped the idea -- with Goldman Sachs Group Inc. leading the charge. The firm, in an October 2018 letter to the Fed, called the proposal “highly problematic” because it could rope in a lot of transactions not even outlawed by the existing version of Volcker.

In recent discussions, regulators have weighed dumping the accounting measure and relying more heavily on something known as the market-risk capital prong, the people said. That method, which is already in Volcker, prohibits trades involving financial instruments that are generally held for sale in the short term. The change would probably be appealing to banks because it’s based on rules they already have to follow.

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