“Five years after the financial crisis, regulators will vote Tuesday on the “Volcker Rule,” one of the most contested elements of the sweeping, post-crisis Wall Street reform act known as Dodd-Frank.

“The rule is expected to bar most trading by banks for their own accounts and profit — so-called “proprietary trading” — in a bid to protect the financial system and federal deposit insurance from future 2008-like meltdowns. Banks would still be able to do such trading for clients.

“The Federal Reserve, Commodity Futures Trading Commission, the Securities and Exchange Commission and other agencies are scheduled to consider the new rule. It is named for former Fed chairman Paul Volcker, a longtime advocate of forcing banks to curtail trading in order to limit the volatility of financial markets.

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“The biggest arguments recently have been about how much trading should be allowed to hedge positions, especially since banks typically have more deposits on hand than they have loans outstanding, with the rest of their assets usually invested in the markets. They also typically own securities as part of legal activities such as executing client trades and making markets, he said.

“Liberal-leaning groups such as Better Markets have lobbied for the toughest version of the rule possible, arguing in a Nov. 21 letter to the agencies that allowing too much trading to let banks hedge risks will allow proprietary trading via loopholes. They pointed to JPMorgan Chase’s $6 billion-plus loss in the “London Whale” derivatives trade as evidence that trading that banks say is simply a hedge can pose risks to the system. New rules would hurt access to credit far less than another crisis, they said.”

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