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U.S. regulators plan December 10 Volcker rule vote

Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission, testifies before a House Financial Services Committee hearing on "E
Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission, testifies before a House Financial Services Committee hearing on "E

By Douwe Miedema

WASHINGTON (Reuters) - Wall Street banks will get the final decision about a controversial ban on betting with their own money next week after years of debate, as three U.S. regulators each announced meetings to vote on the Volcker rule.

The U.S. Federal Reserve and two other finance watchdogs - out of a total of five who need to approve the rule - said on Tuesday they planned to hold public meetings on December 10, in line with what some of them had signaled.

Treasury Secretary Jack Lew is pushing for the rule to be finished this year. But the regulators have been struggling to hammer out a compromise on the complexities of the text, which has now mushroomed to a 1,000 pages.

Other than the Fed, the Commodity Futures Trading Commission - which oversees derivatives markets - and the Federal Deposit Insurance Corporation - a bank regulator, also scheduled public meetings on the same day.

Investment banks such as Goldman Sachs Group Inc., JPMorgan Chase & Co and Morgan Stanley will be eager to see how much the rule has changed from when the watch-dogs first proposed it two years ago.

The rule bans proprietary trading, a common practice in the heady days before the 2007-09 financial crisis, when banks played financial markets for profit. It also limits banks' holdings in hedge funds and private equity funds.

The Volcker rule - named after former Federal Reserve Chairman Paul Volcker - is the last major piece of unfinished business in the 2010 Dodd-Frank law, which aims to prevent a repeat of the 2008 taxpayer bail-out of Wall Street.

But regulators in protracted talks had a hard time distinguishing proprietary trading from uncontroversial activities such as market making, in which banks hold risk to ease markets for clients and not for their own accounts.

Mary Jo White, head of the Securities Exchange Commission said separately on Tuesday that she expected her agency to act around the same day as the CFTC, though the SEC declined to comment further on the announcements.

The Office of the Comptroller of the Currency, headed by Thomas Curry, is the fifth regulatory authority that needs to approve the Volcker rule. But Curry sits on the board of the FDIC, and his vote there counts for both banking regulators.

CONSENSUS AT LAST

Banks have long complained that the rule would eat into profits. But JP Morgan's $6 billion so-called London Whale loss in 2012 - in a poorly known part of its business - did away with any notion the rule would be watered down.

Federal Reserve Governor Dan Tarullo said last month that the loss - named for the huge trading positions JP Morgan took - had been a reality check and that regulators had been mandated to ensure such a fiasco would not be repeated.

Contrary to what some lobbyists had expected, the Fed and the FDIC said the rule they will vote on will be final and there will be no further chance for the industry to submit comments.

Some in the financial industry had hoped there might be a so-called interim final rule, a compromise that would have enabled regulators to keep adjusting the rule even while it is in force.

Banks will also see how they can continue to protect - or hedge - risk, and are worried that regulators will impose much tougher tests for banks that a position is an actual hedge, and not a hidden proprietary position.

The CFTC meeting is almost certainly the last under Chairman Gary Gensler, who is leaving at the end of the year, when his term expires. President Barack Obama has nominated Timothy Massad, a Treasury official, to succeed him.

That would leave Democrat Mark Wetjen and Republican Scott O'Malia as the other two commissioners to vote on the rule, after Democrat Bart Chilton, who is also leaving, said he would not take part in further public meetings.

The fact that agencies are scheduling meetings ordinarily means they have reached consensus. The rules they put out do not have to be identical, but it is unlikely that there will be wild differences between the versions.

The fact that the rule will not be reproposed means the SEC's two Republican commissioners will almost certainly oppose it, with SEC Commissioner Daniel Gallagher particularly critical, having said the rule should be scrapped.

(Refiled for extraneous word in headline)

(Reporting by Douwe Miedema; Editing by Maureen Bavdek, Dan Grebler and Bernard Orr)

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