Shelby Does Banks’ Bidding, Tries To Further Weaken Volcker Rule (UPDATED)

The Senate Banking Committee is set to begin marking up Chairman Chris Dodd’s (D-CT) financial regulatory reform bill today, which means working through (or dismissing) 473 different amendments. Many of those are pointless GOP amendments meant to waste time — such as more than 50 changing the effective start date of the legislation — but others reflect the current Republican courtship of the banking industry.

For starters, many of them aim to mitigate Dodd’s attempts to rein in banks that are “too big to fail,” including preventing regulators from implementing higher capital standards on the very biggest financial institutions. And one in particular, proposed by the Sen. Richard Shelby (R-AL), would further weaken the already scaled-back “Volcker rule” in Dodd’s bill.

The Volcker rule — proposed by the Obama administration and named after former Federal Reserve Chairman Paul Volcker — would ban banks from engaging in trading for their own benefit (proprietary trading) with federally insured dollars. Dodd has already weakened the rule, taking the administration’s hard ban and allowing bank regulators more latitude in implementing it. But the banks want this watered down even further:

The current language in the draft says federal agencies “shall issue final regulations implementing” the Volcker rule…“We believe the regulators should have the discretion to deal with the situation on a company-by-company basis,” said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable, a Washington-based trade group. “You can’t have a blanket prohibition on proven risk- management techniques.” When senators meet to debate changes, “our hope is that they change ‘must’ to ‘may,’” Talbott said.

And lo and behold, Shelby has amendments doing exactly that:

Amendment Number Sponsor Description
187 Shelby Amendment modifies Volker Rule language to provide greater discretion for
188 Shelby Amendment modifies source of strength language from a “shall” to a “may”, and includes a study

So Talbott, who represents the 100 largest financial firms in the country, asks and Shelby delivers! But as Volcker himself said, giving regulators too much leeway in implementing regulations leads to lax enforcement, when the banks lay their pressure on and complain that enforcement will cut into their bottom lines. “In my opinion, it’s very unlikely that the regulators and supervisors would evoke a strict prohibition until a crisis came and then it’s too late,” Volcker said. “Look, I’ve been a regulator for 20 years. So I know how they are.” Volcker advocated a strict legislative ban on proprietary trading with federally insured money that banks can’t escape.

But this is really par for the course for Republicans recently, as they have been hardly trying to hide their bank-friendly actions. Last week, House Minority Leader John Boehner (R-OH) told the banks to stand up to “punk staffers” writing new regulations, while Shelby himself added that bank profits always trump consumer protection.


Republicans have decided to forego offering their amendments to Dodd’s bill in committee. Instead, the plan to simply oppose it and offer their amendments on the Senate floor.

Share Update


,Dodd’s bill passed the committee on a party-line vote of 13-10 and now moves to the floor.

Share Update