The Volcker Rule Is Here! Will It Work?
FDIC, Fed unanimously approve regulation banks have lobbied against
By Kevin Spak, Newser User
Posted Dec 10, 2013 12:36 PM CST
Former Federal Reserve Bank Chairman Paul Volcker.   (AP Photo/Matt Rourke)

(Newser) – The FDIC and Federal Reserve both unanimously approved the long-debated Volcker Rule today, and three other regulatory agencies plan to before the day is out, making it official. The rule, named for and originally proposed by Paul Volcker, aims to ban proprietary trading, "or in plain English," as the Washington Post puts it, "it removes the parts of banks that gamble and act like hedge funds, because those parts can blow up." Or at least, that's what it was supposed to do.

But big banks like JPMorgan Chase and Goldman Sachs have been lobbying against the law for more than three years, Bloomberg points out, and their "lobbying efforts paid off" in easing some provisions. On the other hand, recent weeks have seen a charge from regulators favoring a tougher version, and they've scored points, too, the New York Times reports. Here's what each side won:

The Tough Side:

  • When JPMorgan lost $6 billion on the London Whale trade, it said the position was a "hedge." The rule still allows hedging, but banks will now have to name a specific, quantifiable risk that each such trade is hedging against.
  • Bonuses and compensation must be structured in a manner that doesn't encourage "prohibited proprietary trading."
  • Chief executives will have to personally "attest" every year that the bank has measures in place to comply with the rule.

The Not-So-Tough Side:
  • Banks have until July of 2015 to implement the rule, though they must make a "good faith effort" to do so before that.
  • Banks are still allowed to "make markets," meaning to act as middle men for clients who want to buy and sell stock. Under this guise, banks could buy and hold a stock, arguing that a client might someday want to buy it. The rule mandates that banks buy only enough to meet the "reasonably expected near-term demands of clients," but leaves it up to banks to decide what's reasonable.
  • Banks can still make proprietary trades in bonds issued by governments.
  • Many banks tell the Wall Street Journal that they think they're already in compliance with the law, while some business groups say they intend to challenge the rule in court. Reform advocates, meanwhile, are starting to call again for a return to Glass-Steagall.

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Showing 3 of 11 comments
Dec 11, 2013 6:59 AM CST
The only way banks will act responsibly is if we the depositors withdraw all our money. Meaning if 100 million people have on average $3k in savings take it out and put it to your sock at home. This would teach them the lesson, not some more stupid out of Cosmos rules which will be convoluted and disobeyed down the road. This only for show and I wish that some of these bankers would be hanged upfront of the building. They are wrecking everything they touch, so who cares about some new stupid rule.
Dec 10, 2013 2:49 PM CST
Nothing the government does will be right until we collectively reform how they spend our money... we need to turn the elected legislators back into public servants. Until then, it's all a feeble attempt at polishing crap.
Dec 10, 2013 2:20 PM CST
Dodd-Frank is the financial version of Obamacare, and they both use the same approach. A rationale person might look at healthcare or the financial industry and say, there are a few things that are broken and need improvement. Let's fix those things. Obamacare and Dodd-Frank were designed, in addition, to wreck everything that was working, in the name of government control and bureaucracy without necessarily fixing those things that were broken. The cost of these two bills to the U.S. economy will be horrendous. It's even worse when you consider that Dodd and Frank were participants in creating the root causes of the 2008 crash.