Wall Street regulators have agreed to rewrite the Volcker Rule,according to three people familiar with the matter, moving toloosen industry-despised restrictions that were central to the U.S.response to the financial crisis.

The five agencies that wrote the original limits on banksinvesting with their own capital have decided to begin workingtogether on a revision, said the people, who requested anonymitybecause the discussions aren't public. The changes discussed at aclosed-door meeting on Friday will likely give big banks moreflexibility for handling client trades, as well as investments inprivate equity and hedge funds.

The planned rewrite of Volcker highlights the administration'sefforts to use agencies to roll back regulations without having togo through a Congress that has failed to advance many of PresidentDonald Trump's other priorities. Regulators aligned with Trump haveindicated they'll be guided by Treasury Secretary Steven Mnuchin'sJune report calling for “significant changes” to the rule, whichwas designed to rein in risky trading after the financialcrisis.

The agencies can revise the 2013 rule's text, but unless it isrepealed, there's only so much that can be done to response toyears of lobbying by financial titans including Goldman Sachs Groupand JPMorgan Chase & Co.

While the agencies agreed to start editing the rule duringa meeting of the Financial Stability Oversight Council — a panel ofregulators led by the Treasury secretary — at least one of them isalso looking to gather outside input. The Office of the Comptrollerof the Currency is poised to request public comments on Volcker,according to Keith Noreika, who is running the agency on atemporary basis.

Trump's election and appointment of bank-friendly regulatorsraised hope in the industry that the rule would be changed, and thepresident's lieutenants have signaled their intent to do so.Mnuchin told lawmakers last week that Treasury was workingwith regulators to clarify the rule. He also told them that hewouldn't object to Congress repealing Volcker, but that hisdepartment was focused on how to fix it.

“We had a thorough and constructive dialogue on theVolcker Rule last week,” Mnuchin said in a statement to Bloombergafter being asked about Friday's agreement. “During the discussion,the FSOC member agencies shared many good ideas on how the VolckerRule could be improved. I look forward to continuing to work withour banking and market regulators on modifying the rule.” Spokesmenwith the five regulators declined to comment.

The rule named for former Federal Reserve Chairman Paul Volcker,an early champion of the concept, has been controversial from thestart. It was meant to prevent lenders with federal depositinsurance from making big market bets that could lead to outsizelosses. Proponents argue that the restrictions have mademarkets safer and say that banks still make billions on trading.Critics say it has made banks too conservative, prompting aretrenchment from certain markets that has dried up liquidity.

Wall Street's most frequent complaint is that Volcker is unclearon what it bans, so the banks are forced to stay far away from theedges of what's allowed.

The Treasury report called for exempting banks with less than$10 billion in assets from the rule completely and giving alllenders more leeway to trade. Restrictions on banks' investing inprivate-equity and hedge funds should be loosened, Treasury arguedat the time.

Regulators are hoping to finish a proposal by the end of theyear, one of the people said. Still, revising it could take yearsand will face administrative processes at each of the fiveagencies: the Federal Reserve, Securities and Exchange Commission,Federal Deposit Insurance Corp., Commodity Futures TradingCommission and OCC. The original rule took more than three years tofinish, and a replacement would need to go through a formal jointproposal before all five regulators could finalize it.

Regulators have already made an effort to ease some of Volcker'sdemands by granting deadline extensions for compliance, such as theFed's announcement last week that it invites banks to seek moretime to shed their stakes in seeding funds. And Trump's nominee totake over the Fed's Wall Street oversight, Randal Quarles, said athis confirmation hearing last week that he favors efforts tosimplify Volcker.

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