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Washington - US regulators are set on Tuesday to approve a rule to rein in risky trading by banks, a crucial part of their efforts to reform Wall Street and prevent another costly taxpayer bailout.
The Volcker rule, named after former Federal Reserve chairperson Paul Volcker, who championed the reform, prohibits banks from betting on financial markets with their own money, a practice known as proprietary trading.
The rule, which has now mushroomed into 800 pages, will also bar them from owning more than 3% of hedge funds or private equity funds.
The final version of the crackdown is expected to be tougher than when it was proposed two years ago, after JPMorgan Chase & Co's $6bn loss in 2012 - nicknamed the London Whale after the bank's huge positions - highlighted the perils of speculative trading.
Banks worry the rule will erode profits and make it harder to engage in businesses that are exempt under the law such as hedging against market risks, facilitating client trading - or market-making - and security underwriting.
Unveil details
A partner at Deloitte & Touche, Robert Maxant, said: "The challenge is to prevent the impermissible activities, while promoting the underwriting, the market making, everything that everyone regards as important to financial markets."
The rule is one of the most hotly debated parts of the 2010 Dodd-Frank Wall Street reform act, aimed at preventing the taxpayer bailouts of large investment banks that happened during the 2007-2009 credit collapse.
The three US bank regulators, as well as the Securities and Exchange Commission and the Commodity Futures Trading Commission, will unveil details of the final rule later on Tuesday.
JPMorgan initially explained its London Whale trades as portfolio hedges and regulators have since made it clear the final rule will render such trades impossible.While the narrowing of the Volcker rule trading exemptions is expected to bite, banks have already wound down their proprietary trading since the crisis.
