The potential success of the measure is due in no small part to its namesake, former Federal Reserve Chairman Paul Volcker, who has been outspoken in favor of both the rule itself and in keeping it “pure” and free from carve-outs and exemptions. Yesterday, Volcker appeared on CNBC with former FDIC Chairman Bill Isaac, and in a portion of the interview that didn’t air (but for which a transcript is available), Isaac offered his full support for the Volcker rule and even pushed Congress to go further in separating risky financial activities from traditional depository banking:
LARRY KUDLOW: Bill Isaac, do you agree with Mr. Volcker on this?
BILL ISAAC: Absolutely…Actually, I would go further with that. I actually would like to see us return to the Glass-Steagalll restraints. As they were in 1999 when we repealed the last of them. I think we’ve gone too far in repealing Glass-Steagall. I actually was in favor of it at the time.
LARRY KUDLOW: Yeah, I remember.
BILL ISAAC: Paul was opposed to it, at the time. He– I think he was right. And I thought we could regulate these activities better than we can. And so, I really would like to see us go further than the Volcker Rule. But I certainly would like to make sure we go at least that far.
It’s good that Isaac is willing to admit that his support for dismantling the regulatory wall between investment and depository banking was a mistake. While repealing Glass-Steagall is often cited as one of the contributors to the financial crisis, not many who supported it then have been willing to revisit what that support meant. (Former Citigroup CEO Jack Reed and House Majority Leader Steny Hoyer (D-MD) have been the exceptions.)
For his part, Volcker reiterated his insistence that the ban on proprietary trading not include any exceptions. “The problem with making the exceptions with plausible cases by individual institutions is once you begin, you can never stop. And if you make enough exceptions, you no longer have a rule,” he said.