Troubles in Volcker land?
My post last week about ditching the Volcker Rule and returning to some form of Glass-Steagall got a lot of positive responses. Back then I wrote that the Volcker Rule, which requires regulators to cleave risky trading for a bank’s house account from deposits insured by the FDIC, is immensely complex and that it will never be properly defined or enforced. Several regulators in the past week have agonized publicly over the need to get the rule “right.”
First among them was Fed Chairman Ben Bernanke. In the three minutes of C-Span video above, Bernanke says: “We are going to try and do our best to clarify the distinction between proprietary trading and market making.” It’s clear that even to our top banking regulator, defining Volcker properly is nearly impossible.
SEC Chairman Mary Schapiro had this to say on Volcker, via The Hill:
When asked by Rep. Mario Diaz-Balart (R-Fla.) if regulators would be better off scrapping the proposal and starting over, Schapiro was noncommital.
“Whether we start right from the beginning again or not, I can tell you we will and are reviewing all the comments letters carefully and rethinking how we should approach the statutory requirement,” she said. “We have a lot of issues to work through.”
And here’s SEC Commissioner Dan Gallagher, via Reuters:
Dan Gallagher, a Republican commissioner at the U.S. Securities and Exchange Commission, said on Monday that a quick review of the thousands of [Volcker] comment letters revealed widespread fears about the rule’s potential impact.
“These comments provide powerful evidence that the benefits the proposed rule was designed to provide may come at an unacceptably high cost,” Gallagher said in prepared remarks for a speech at the Institute of International Bankers conference in Washington.
He said regulators must be willing to re-examine their initial efforts and “if necessary” go back to the drawing board on the proposal.
And here’s more, from Gallagher’s fellow Republican SEC commissioner, Troy Paredes, via the Washington Post:
In a speech this weekend, Troy Paredes … warned that the proposed regulation “could unduly impede the competitiveness and dynamism of our financial markets and hinder the flow of capital to its most productive purposes at the expense of our country’s economic growth” and he was “very troubled” by such unintended consequences.
Finally, here’s Jill Sommers of the CFTC in a recent speech:
The proposal is lengthy and extremely complex and I do not think we spent sufficient time to fully consider all of its implications. I am troubled that this is the path the Commission has chosen.
The stability of our financial system will only be ensured once big banks’ risky trading is isolated from regular deposits; once shadow financial institutions are properly regulated; and once the derivatives markets are structured in a transparent way. It’s not reassuring that top U.S. regulators are so unsure of the consequences of implementing Volcker. Let’s take the stable path and bring back Glass-Steagall.