The Federal Reserve extended the deadline for bank to sell stakes in hedge funds, private-equity and venture-capital firms covered by the Volcker Rule.

The decision of the Federal Reserve serves as a Christmas present for banks, given the fact that the Wall Street have been lobbying for more time to exit their stakes in risky investments.

The Federal Reserve said its decision will “reduce the potential disruptive effects that significant divestitures of covered funds could have on markets.”

Federal Reserve Extends Deadline for Banks to Sell Hedge Fund Stakes

Federal Reserve’s new deadline

The Federal Reserve decided to give banks until July 21, 2016 to conform investments in and relationships with covered funds and foreign funds that were made before December 31, 2013.

In addition, the Federal Reserve also extended that deadline for banks to reduce investments in legacy covered funds until July 21, 2017. The previous deadline was 2015.

According to the Federal Reserve, the extension would give banks additional time to divest or conform only legacy covered fund investments, and it does not apply to proprietary trading activities. Banks are required to conform proprietary tading activities to the final ruled by July 21, 2015.

The Volcker Rule

The Volcker Rule is a key provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which “generally prohibits insured depository institutions and any company affiliated with an insured depository institution from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund.”

The Volcker Rule was named after Paul Volcker, the former chairman of the Federal Reserve. The Federal Reserve adopted the rule last year. Since its implementation, the Wall Street has been asking regulators to delay the implementation of its requirements.

Commenting on the move of the Federal Reserve, Marcus Stanley, a policy director at Americans for Financial Reform said, “It’s disappointing. Whether the Volcker rule is going to be successfully implemented is still up in the air.”

On the other hand, Mr. Volcker commented,  “It is striking that the world’s leading investment bankers, noted for their cleverness and agility in advising clients on how to restructure companies and even industries, however complicated, apparently can’t manage the orderly reorganization of their own activities in more than five years.”