Republicans, with help from Wall Street’s biggest banks, have already successfully watered down one of the most important financial regulations included in the 2010 Dodd-Frank Wall Street Reform Act. Now, two House Republicans are attempting to delay the rule’s implementation for another two years, even though it is already behind schedule and likely won’t be finished until 2013.
The regulation in question is the Volcker Rule, which would prohibit certain kinds of risky trades — known as proprietary trades — at banks that are backed by taxpayers and the federal government. Prop trading is widely credited with playing a role in the collapse of the financial industry in 2008, and the Volcker Rule, named for former Federal Reserve chairman Paul Volcker, is aimed at preventing a similar occurrence in the future. Reps. Spencer Bachus (R-AL) and Jeb Hensarling (R-TX), though, are attempting to ensure it won’t take effect for another two years, Bloomberg reports:
“Given the time that it will take for you to agree on one version of the Volcker Rule as well as the tremendous uncertainty that market participants face in trying to anticipate what the final rule will look like, we respectfully suggest that the Federal Reserve Board delay the Volcker Rule’s effective date,” the lawmakers wrote. […]
“While the Volcker Rule promises little if any benefit, what little benefit it does promise will not be realized if regulators further fragment financial markets and ratchet up the costs of compliance for market participants by issuing multiple versions of the Volcker Rule,” the lawmakers wrote.
Republicans and Wall Street banks lobbied to prevent the Volcker Rule’s inclusion in Dodd-Frank, and though they were ultimately unsuccessful, outgoing Sen. Scott Brown (R-MA) made sure it was watered down before the bill passed. Both the GOP and Wall Street have fought the rule incessantly since its passage, lobbying regulators and Congress to water it down even further. It’s so weak now — it includes a loophole large enough to drive a Mack truck through, according to one of its original authors — that Volcker himself isn’t satisfied with it.
And contra Bachus and Hensarling’s claims, the Volcker Rule provides a major benefit to taxpayers. It will indeed make banks less profitable, but it also makes them safer by shifting risky trading to hedge funds and other institutions that aren’t backed by taxpayers, thus ensuring that risky trading won’t again jeopardize the entire financial system and billions of taxpayer dollars. Despite opposition from the GOP and current bankers, it is backed by former traders and ex-CEOs of major Wall Street banks, including the former Citigroup chair credited with inventing the type of supermarket banks the rule is designed to prevent. The rule, according to a former Merrill Lynch executive, is “necessary to correct a mistake that poses a danger to our economy.”