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FDIC backs ban on banks trading for own profit

WASHINGTON — Banks would be barred from trading for their own profit instead of their clients under a rule being proposed by federal regulators.

The Federal Deposit Insurance Corp. backed the rule on a 3-0 vote. The ban on so-called proprietary trading was required under last year’s financial overhaul law.

For years, banks had bet on risky investments with their own money. But when those bets go bad and banks fail, taxpayers could be forced to bail them out. That’s what happened during the 2008 financial crisis.

The Federal Reserve also approved the draft rule. The Securities and Exchange Commission and Treasury Department must still vote. All four regulators will vote on a final version of the rule after a period of public comment. It is expected to take effect next year.