The Volcker Rule Passes

Adam Taggart
By Adam Taggart on Tue, Dec 10, 2013 - 4:39pm

The Volcker Rule, which Wall Street has fought against for years, was approved by all 5 regulators today.

'Volcker rule' ban on risky trades passed by regulators (BBC)

All five US financial regulators have approved the Volcker rule, designed to restrict the finance industry in the wake of the 2008-09 financial collapse.

Named after former Federal Reserve chairman Paul Volcker, it bans banks from using their own funds for trading activities.

It is considered the centrepiece of the 2010 banking reform legislation known as Dodd-Frank.

Banks will have until 21 July 2015 to comply with the rules.

The five agencies ruling on the measure are: the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Securities and Exchange Commission (SEC), which voted the measure through by a vote of 3-2, and the Commodities Futures Trading Commission, which passed the rule by 3-1.

Although the Volcker rule was passed as part of the Dodd-Frank legislation in 2010, it has faced difficulties in implementation, mostly due to opposition from the banking industry.

Some herald it as much-needed reform; others argue it is too toothless.

It's intent is clear, though: to reduce banks attempt to chase risk via proprietary trading. It aims to get banks out of the speculation game. Or as Volcker put it, to make banks "more boring" again.

More from the BBC:

While the bare bones of the Volcker rule have been known for some time, the specifics of its implementation were unveiled for the first time on Tuesday ahead of the vote.

Stretching to 800 pages, at its core, the rule imposes a strict ban on so-called "proprietary trading", which is when banks use their own funds to make trades.

Although banks had been hoping for a less strict interpretation of the rule, which was first proposed by Paul Volcker to US President Barack Obama in 2010, recent trading debacles, including JP Morgan's "London whale" loss, seemed to have led to a stronger measure.

Banks have argued that the rule is too comprehensive and makes it difficult to distinguish between trades made for profit and those done simply to hedge against risk (...)

In addition to banning proprietary trading, the Volcker rule also imposes restrictions on how and when banks invest in hedge funds and private equity (...)

Proprietary trading was once a big profit generator for banks, and a Standard & Poor's analysis found that even a significantly weakened rule could cost the big eight US banks $2-3bn a year in foregone earnings.

If a more strict rule is established, it could cost them $8-$10bn a year.

It could also further damage Wall Street's ability to compete with overseas markets, unless similar rules are adopted around the globe.

"It will make US banks safer, if the rest of the world goes along with it, then I think it'll make the banking industry safer, but the interlocking aspects of international banking trade are very, very much a threat," said Mr Alpert.

Although individual banks are not expected to sue to stop the implementation of the Volcker rule, some analysts expect that industry groups, such as the US Chamber of Commerce, might engage in litigation to block the measure.

Expect lots of pricey lawsuits, defended at taxpayer expense, from Wall Street to continue to fight this tooth & nail. The likely reality is that some of Volcker's intent will be enacted, though not enough to materially impinge the banks' options for pursuing their own enrichment at unacceptable risk to the system.

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4 Comments

jtwalsh's picture
jtwalsh
Status: Gold Member (Offline)
Joined: Oct 1 2008
Posts: 268
We're from the government and we are here to help you.

In the midst of the great depression the Glass-Steagall Act was passed. It protected the banking public for almost six decades until it's significant provisions were repealed in so-called "banking reform" under President Clinton. If my sources are correct it was only thirty seven pages long but worked for three generations.

I am glad the Volker rule seems to be coming online.  I have not and will not waste my time trying to read the whole text.  From commentators I have read, if enforced, it could limit some of the worse excesses of the banking system.

The cynical part of me wonders if the rule's eight hundred pages will give us anywhere near the same protection as the older law.

I suppose we will all get to find out.

JT

Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
Joined: May 26 2009
Posts: 3077
Volcker not even involved in drafting "Volcker Rule"

Today Zero Hedge reports on the millions banks have spent to-date in neutering the restraints the Volcker Rule could place over Wall Street:

Curious how much the various banks who stood to be impacted by or, otherwise, benefit from either a concentration or dilution of the Volcker rule? According to OpenSecrets, which crunched the numbers, here is how much being able to continue prop trading meant to some of the largest US banks and lobby groups:

Not bad considering the loophole-ridden Volcker Rule will effectively permit "hedge" books (where an army of lawyers paid $1000/hour defines just what a hedge is) to continue piling on billions of dollars in wildly profitable, Fed reserve funded trades.

 

Congrats on the math, alas completely flawed conclusion: obviously the banks wouldn't spend tens of millions not to achieve their goal, which they have - cover up a Rule which is only superficially named for Paul Volcker (even he admitted he had zero contribution in its drafting), and which was almost certainly penned by the banking lobby, in a way that allows banks to continue their prop trading status quo, only this time with the implicit blessing of the government. And since everyone knows how this movie ends, can we just please fast forward to the bit where one after another bank has to once again be bailed out on the taxpayer dime.

LogansRun's picture
LogansRun
Status: Diamond Member (Offline)
Joined: Mar 18 2009
Posts: 1444
Smoke and Mirrors

Volcker is one of them.  The Volcker Rule solidifies the hold of the Fed owning banks on the rest of the industry.....that's ALL it does.  

 

I'll say it again:  NOTHING WILL PASS OR BE IMPLEMENTED THAT TPTB DON'T APPROVE.  Which means whatever passes will be to the benefit of the owners of the Fed....no one else.

 

5 years running, and some here still don't get it.  

pat the rat's picture
pat the rat
Status: Silver Member (Offline)
Joined: Nov 1 2011
Posts: 116
volcker rule

Adam this time it will not be bail out ,but a bail in ,then a bail out on the tax payer dime! Keep a close eye on  your bank account ? 

                                                     pat the rat

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