The Securities and Exchange Commission has filed a petition with the court to declare that a group of hedge funds may be able to buy up government debt to get a return on their investments.
The commission filed its petition Monday, a day after the US Treasury announced it would impose new capital controls to prevent banks from hoarding large amounts of cash.
A spokesperson for the US Securities and Trade Commission said the filing was part of a broader effort to enforce the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is the law that has put limits on the size of corporate bank bailouts.
“It is our duty to protect the public interest and the integrity of the financial system by requiring all issuers and other institutions to ensure that their investments are held in a safe, sound, and transparent manner,” the spokesperson said.
Some companies, including JPMorgan Chase, Citigroup and Bank of America, have been accused of buying up large amounts to get access to taxpayer funds, a practice that is allowed under Dodd-Newman, the law enacted in response to the financial crisis.
For years, regulators have argued that banks and other financial institutions should be able not only to keep cash on hand but also invest in risky assets such as debt, but they have also pushed to require them to hold the funds in a way that minimizes their exposure to the risk.
Many financial institutions, including Bank of Japan and Bankers Trust, are already subject to capital gains taxes for holding their deposits in the form of securities.
At the moment, it is illegal for any financial institution to hold an asset in cash or securities and it is not a capital gain.
This new filing also allows the US government to enforce its previous rule that required banks to hold at least 10% of their assets in cash and other forms of securities as long as they kept the securities as investments.
If the government can make that ruling enforceable, the rules could be extended to include other types of assets.
That could include the value of any investments in the stock market or bonds.
The rule applies to most US banks, including the largest, Bank of Tokyo-Mitsubishi UFJ, which held $1.4 trillion at the end of 2016, according to the Securities and Public Market Act.
Bank of America also had about $2.5 trillion of assets as of the end last year, according the SEC filing.
The new filing is part of an ongoing effort to ensure Wall Street firms can continue to earn billions of dollars.
Under the new rule, the Securities Exchange Commission would have to approve any bank that sought to buy government bonds or other financial assets that would generate profits for its own account.
It is unclear if other companies or investors could be affected by the rule, though a recent survey by research firm CB Insights found that some of the largest US banks and hedge funds, including Morgan Stanley, Barclays and Goldman Sachs, were considering whether to buy US government bonds.
On Monday, the SEC said it will consider a petition from two banks, Bankers Bank and BMO Financial Group, that have long argued they should be allowed to buy into the securities markets, even though they are currently prohibited from doing so under the law.
The commission also said it would consider the petition of other institutions that have said they should not be required to hold their assets as investments, such as the US Postal Service and US Airways.
As part of its filing, the agency said it intends to consider “any other entity that has been previously barred from purchasing securities from a bank or other regulated financial institution because of its connection to the government.”
The filing comes amid the Trump administration’s push to limit Wall Street’s ability to make big profits on the backs of taxpayers.
During his first weeks in office, Trump issued a sweeping directive that loosened financial regulations, including rules governing derivatives and other investment products.
Trump’s new policy, which also requires banks to report any profits they earn on government bonds, has prompted concerns that Wall Street will get special treatment under his rule.
More:Federal regulators have been considering the issue since Trump’s election in November.
After the president announced the new policy in January, Bank Of America said it was concerned about the potential impact on its financial stability, though it has since changed its position.