The Securities and Exchange Commission Wednesday backed a proposal to bar banks from trading for their own profit instead of their clients.
The SEC voted 4-0 to send the ban on so-called proprietary trading out for public comment. The rule was required under the financial regulatory overhaul.
Critics on the left have dismissed the effort as weak and marred by loopholes. Banks argued it would hurt the economy.
The SEC is the third federal regulator to support the proposal, called the Volcker Rule after former Federal Reserve Chairman Paul Volcker. On Tuesday, the Federal Deposit Insurance Corp. and the Federal Reserve both backed it.
For years, banks bet on risky investments with their own money. But when those bets go bad and banks fail, taxpayers may have to bail them out. That happened during the 2008 financial crisis.
Under the proposal, banks must hold investments for more than 60 days and bank managers must make sure employees comply with restrictions.
The public has until Jan. 13 to comment on the rule, which is expected to take effect by July after a final vote by all the regulators. Banks would have until July 2014 to comply.
Critics on the left contend that the rule as written is too vague and its effect on risk-taking will be limited. Banks have a history of working around rules and exploiting loopholes. In this case, banks can make most trades simply by arguing that the trade offsets another risk that the bank bet on.
Wall Street banks say the ban on proprietary trading could prevent them from buying and selling investments that their customers might want.