U.S. Sen. Jeff Merkley (D-OR), co-author of the Volcker Rule, is urging federal financial regulators to reject a proposed rewrite of the rule.
Merkley, who wrote the bill with former Sen. Carl Levin (D-MI), said the proposed changes would weaken the rule’s protections. The Volcker Rule, established as part of the Dodd-Frank Act, prohibits banks from engaging in proprietary trading and from owning or controlling hedge funds or private equity funds.
The new changes would alter the rule’s compliance requirements based on the size of a firm’s trading assets and liabilities. The most stringent requirements would be applied to banks with the most trading activity. It would also retain the short-term intent prong of the “trading account” definition only for banks that are not subject to the market risk capital rule prong. Further, it would replace the rebuttable presumption that instruments held for fewer than 60 days are covered under the short-term intent prong with a rebuttable presumption that instruments held for 60 days or longer are not covered.
“Your agencies have been charged with enforcement of this rule in order to protect taxpayers from profit-driven proprietary trading,” Merkley wrote in a letter to the heads of the five federal regulatory agencies. “The proposed changes to the Volcker Rule voted on by the FDIC are damaging to its core. If finalized, this rulemaking would constitute yet another attempt to undermine a critical provision of Dodd-Frank, at a time of growing concern about the stability of our economy.”
Merkley said there’s evidence that some banks are not complying with the rule. Regulators should be investigating these instances rather than sanctioning non-compliance and watering down the rule in response to lobbying efforts by large banks.
Former Fed Chairman Paul Volcker, for whom the rule is named, also denounced the proposed rewrite.
“The new rule amplifies risk in the financial system, increases moral hazard and erodes protections against conflicts of interest that were so glaringly on display during the last crisis,” Volcker said.
The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation have already approved the changes. The Federal Reserve Board, Securities and Exchange Commission, and Commodity Futures Trading Commission have not yet voted on the changes.
“The Volcker Rule not only sought to undo damage of past abuses of proprietary trading, it also safeguards working families’ hard-earned savings from exploitation by financial institutions driven by their bottom line,” Merkley wrote. “I urge leadership of the remaining agencies that have not yet voted to reject this ill-conceived proposal. The need for limits on proprietary trading are as essential as they were during the Great Recession. This is a crucial time for our economy, and we cannot afford another economic crisis fueled by corporate greed. Weakening the Volcker Rule would signal banking regulators’ lack of interest in the financial well-being of working American families and the global economy.”
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