Big banks will get a reprieve from a key crisis-era rule that would let them engage in riskier trading

Big banks are getting a big reprieve from a post-crisis rule aimed at curbing risky behavior on Wall Street.

Federal bank regulators on Wednesday unveiled a sweeping plan to soften the Volcker Rule, opening the door for banks to resume some trading activities restricted as part of the 2010 Dodd-Frank law. The changes would give the largest banks significant freedom to engage in more complicated — and possibly riskier — activities by largely leaving it up to Wall Street firms to determine which trading is permissible under the rule and which is not.

The Federal Reserve, along with four other regulators, took steps Wednesday to ease several parts of the Volcker Rule, which was put in place to prevent banks from making risky bets with depositors' money. The rule, which took the agencies more than three years to write, has been criticized by Wall Street as onerous and harmful to the proper functioning of financial markets.

Regulators said Wednesday that the rule's intent will remain in place but that the regulation needed to be simplified so that banks can more easily comply with it and Washington can adequately enforce it.

"The proposal will address some of the uncertainty and complexity that now make it difficult for firms to know how best to comply, and for supervisors to know that they are in compliance," Fed Chairman Jerome Powell said in prepared remarks before a Board of Governors meeting. "Our goal is to replace overly complex and inefficient requirements with a more streamlined set of requirements."

The proposal, which will be open to public comment and may change before being finalized, was supported by all three sitting Fed governors.

Among the biggest proposed changes outlined Wednesday: Banks will no longer have to specifically prove that each of their trades serves a clear purpose that goes beyond a speculative bet. The proposal would allow banks to more freely engage in hedging, in which they execute trades in an effort to counteract risk in other parts of their businesses. Such trading had been curtailed by the Volcker Rule, which required banks to show regulators specifically how each trade acts as a hedge against specific risks.

Regulators are proposing to relieve banks of that responsibility. That would put the onus on regulators to prove that a trade was not done to hedge an actual risk.

However, regulators will require big banks to create new internal controls to keep themselves from betting with depositors' money and a Fed official said regulators will closely oversee the process of banks establishing their own internal controls.

Regulators will also continue to collect trading information from the largest banks, which are subject to strict oversight and monitoring as part of the enhanced supervisory process put into place after the crisis.

Fed Gov. Lael Brainard, who was appointed by President Barack Obama, said in a statement Wednesday that she supported the proposal as long as the chief executives of banks were willing to personally attest to future claims that their institutions were adhering to the restriction on speculative betting.

"The requirement of CEO attestation is critical for this to work, in my view," Brainard said in prepared remarks.

The changes are already prompting outrage among consumer advocates and other financial watchdogs, who warn it will allow a return to the Wild West days on Wall Street.

"This proposal is no minor set of technical tweaks to the Volcker Rule, but an attempt to unravel fundamental elements of the response to the 2008 financial crisis, when banks financed their gambling with taxpayer-insured deposits," Marcus Stanley, policy director at Americans for Financial Reform, said in a statement. "If implemented, these proposals could turn the Volcker Rule into a dead letter, a regulation that would not meaningfully restrict trading activities at the banks whose problems could drag down the entire financial system — again."