Financial Regulatory Forum

"Just a photo op"?

 – The author is a Reuters Breakingviews columnist. The opinions expressed are his own – 

By James Pethokoukis

WASHINGTON, Feb 15 (Reuters Breakingviews) – The much-hyped Volcker Rule proposal is failing fast in the U.S. Congress. Paul Volcker probably isn’t that surprised. The former Federal Reserve chairman joked he was “just a photo op”, even after President Barack Obama’s public embrace of his proposal to limit bank proprietary trading. The problem is that legislators are no longer interested in sweeping reform.

Any reform plan has to get through the U.S. Senate Banking Committee. Now that the mood of crisis has passed, Wall Street campaign contributions and Republican intransigence are paramount there. That means the new negotiating tag-team — Democrat Chris Dodd, the chairman, and Republican freshman Bob Corker — is not going to agree on anything radical. Corker says the Volcker Rule will not be a “major topic” for discussion, and that is probably OK with much of the committee.

Increasingly, the Volcker Rule looks more like a stunt than a viable solution. Though Volcker had been pushing it for months, the White House endorsement came as surprise to both the Banking Committee and banking industry. That is a poor way to introduce serious legislation in Washington.

Lame-duck Dodd sees reform as his legacy, so he wants a bill passed by early summer. His view: The Volcker Rule is a sudden and unwelcome complication.

Watching the banks

  BRUSSELS, Feb 16 (Reuters) – Banks in the European Union won’t face a ban on proprietary trading, the bloc’s executive body said on Tuesday, but warned the sector to check its ethics.

Securitised products and derivatives, two areas where banks have raked in revenues over the years, will also come under closer EU scrutiny, officials said.

U.S. President Barack Obama has proposed banning some banks from trading on their own account and limiting their size by forcing divestments of any hedge fund and private equity operation to make them less likely to need public bailouts.

BRUSSELS, Feb 15 (Reuters) – If U.S. President Barack Obama’s plan to ban proprietary trading at some banks was applied in the European Union, it could be problematic for the bloc’s universal banks, an EU document obtained by Reuters said.

EU finance ministers, following a call from the Netherlands which backs the proposal, will discuss its possible impact on Europe at a meeting on Tuesday but no consensus is expected.

The plan, dubbed the “Volcker rule,” was drafted by White House adviser and former Federal Reserve Chairman Paul Volcker, stunned global markets last month and is already facing resistance in Congress.

By Jonathan Spicer

NEW YORK, Feb 9 (Reuters) – The heads of the top U.S. stock exchanges have poured cold water on the Obama administration’s plan to bar banks from proprietary trading.

The chief executive of NYSE Euronext said on Tuesday the president’s plan falls short of targeting what caused the financial crisis, while his counterpart at Nasdaq OMX group Inc, the day before, said the plan would probably have to be changed.

Obama last month surprised Wall Street with the ambitious proposal to limit risky trading by banks. Dubbed the ‘Volcker rule’ after Paul Volcker, the White House economics adviser, it would bar banks from proprietary trading, or placing bets on markets with their own money.

By Kevin Drawbaugh

WASHINGTON, Feb 4 (Reuters) – The U.S. Senate on Thursday looked increasingly likely to adopt, at best, only a watered-down version of the Obama administration’s ambitious proposal to limit risky trading by banks.

After two hearings in three days on the issue, Senate Banking Committee Chairman Christopher Dodd told reporters it will be difficult to legislate a curb on bank trading practices as specific as the White House proposed last month.

He said it would be easier to include something less ambitious in a sweeping package of financial regulation reforms, under development for more than a year now, which aides said was fast nearing completion.

WASHINGTON, Feb 2 (Reuters) – Commercial banks should not be allowed to establish or maintain a separate trading desk, capitalized with their own resources and unrelated to customer business, a top U.S. Treasury official said on Tuesday.

At a hearing to examine a White House proposal to restrict banks’ proprietary trading, Treasury Deputy Secretary Neal Wolin said banks should not be allowed to use such trading desks to speculate on the price of oil, gas or equity securities.

In January, the Obama administration proposed limiting commercial banks’ ability to engage in proprietary trading or do business with a hedge fund or private equity fund.

WASHINGTON, Feb 2 (Reuters) – The regulator of the largest U.S. banks said on Tuesday that proprietary trading was not at the root of the financial crisis and warned that excessive limits could impair some of banks’ central functions.

“It’s one thing to talk about pure proprietary trading as a business where the bank is in the business of taking bets on particular markets for its own account. And I understand the concern with that going forward, although this was not a big source of the problems that led to the crisis,” Comptroller of the Currency John Dugan told reporters on the sidelines of a securitization conference.

President Barack Obama late last month proposed new limits on big banks’ risk-taking, including curbs on commercial banks’ ability to engage in trading for their own profit instead of for clients.

By Huw Jones

LONDON, Feb 1 (Reuters) – U.S. President Barack Obama’s plans to curb proprietary trading will be hard to define and could create regulatory loopholes for banks to exploit, a top European Union official said on Monday.

Obama’s “structural” reform was very different to the regulatory approach adopted by the EU and globally via the G20 group of countries which focuses on toughening up the Basel bank capital rules, said David Wright, deputy chief of the European Commission’s internal market unit.

“This has not been done in the traditional way,” Wright said of the Obama plan.

By Peter Thal Larsen and Hugo Dixon

LONDON, Jan 25 (Reuters Breakingviews) – The overhaul of the global financial system has entered a new, more complicated phase. For two years, a fragile multilateralism has prevailed as the world’s largest economies agreed that changes should be designed and adopted on a global basis. The task of redesigning financial regulation was largely delegated to central bankers, regulators and other technocrats.

That consensus is creaking following President Barack Obama’s double-barrelled attack on Wall Street investment banks. The new tax on banks’ wholesale liabilities and the planned prohibition of proprietary trading by deposit-taking institutions both complicate the aim of getting a new effective global regime for regulating the industry — but in different ways.

Look first at the new tax. In principle, it is sensible to charge large financial institutions for the implicit guarantee they receive from taxpayers when they rely on hot short-term money to fund themselves. But there is already a global push, under the aegis of the G20, to boost the size of banks’ capital and liquidity cushions. This exercise, being masterminded by the Basel Committee, has now entered the “calibration” phase — where the precise numbers are being modelled.

By Keith Weir and Crispian Balmer

LONDON/PARIS, Jan 22 (Reuters) – Major European economies offered support on Friday for U.S. President Barack Obama’s plan to limit banks’ size and trading activities but indicated they had no plans to follow suit.

Obama’s dramatic proposals could rewrite the world financial order but experts said they were light on detail and could cloud the global approach fostered by the Group of 20 nations.

The European Union will not imitate Obama’s plan, because it aims to reduce risk in the sector through other means, an EU source said on Friday.