One of the most important pieces of the Dodd-Frank financial reform law is the Volcker Rule, aimed at preventing federally-insured banks from engaging in risky proprietary bets and counting on taxpayers to bail them out if those bets go wrong. The deadline for regulatory comment on the rule was Monday night, and it didn’t go quietly. Outside groups submitted 170,000 words worth of comments, most of them (though not all) aimed at weakening the rule before it takes effect in July.
The industry threw “one last roundhouse punch at the law,” and most of the letters from across the financial industry were negative. Among the rule’s most vocal opponents: JPMorgan Chase CEO Jaime Dimon and the U.S. Chamber of Commerce, according to the Wall Street Journal:
Opponents minced few words. J.P. Morgan Chase & Co. said the proposed rule “appears to take the view that banking entities, their customers, and the economy must pay almost any price in order to ensure absolute certainty that there can never be an instance of prohibited proprietary trading.” […]
“In short, the American engine of economic growth will be deprived of the fuel needed to operate,” the U.S. Chamber of Commerce wrote.
What the industry doesn’t mention in its effort to weaken the rule is just how successful it has been in watering it down already. With the help of Massachusetts Sen. Scott Brown (R), the industry weakened the rule even before it became law, and it has spent the last year lobbying to make it even weaker. By the time it was unveiled, it was so weak that former Fed Chair Paul Volcker, for whom it is named, said he didn’t like it.
And while opponents of the law continue to argue that it will cost the nation’s largest banks substantial sums of money, that is precisely how the law aims to create the long-term economic stability that didn’t exist prior to the financial crisis. As Reuters’ Felix Salmon wrote today, the proprietary trading prohibited by a strong Volcker rule “doesn’t just disappear.” Instead, it moves to hedge funds, brokers, and other “small-enough-to-fail institutions” that aren’t backed by taxpayers:
In other words, there is a list of institutions which will be harmed by the Volcker Rule. Here it is: JP Morgan Chase, Bank of America, Citigroup, Goldman Sachs, Morgan Stanley. These institutions should get smaller. These institutions should be less profitable. There’s no reason to believe that when that happens, the economy as a whole will suffer.
Like with the Dodd-Frank law as a whole, banks and their lobbyists aren’t satisfied with watering down the Volcker rule before it passed. The industry continues to push back against regulations aimed at preventing the sort of crisis that drove the country into a deep recession four years ago, all under the false premise that what is bad for Wall Street’s balance sheet has to be bad for the American economy as a whole.