Created in the Aftermath of the 2008 Financial Crisis, the Volcker Rule Was Designed to Keep Big Banks from Engaging in Risky Behavior
WASHINGTON, D.C. – Today, the Federal Reserve unveiled a plan to revise the Volcker Rule which has protected consumers and the economy by keeping big banks from engaging in the same types of risky behavior that led to the 2008 economic collapse. The board, which has only three out of a possible seven seats currently filled, unveiled a plan to remove important regulations opposed by Wall Street, and put more government money at risk in the event of a crisis.
“Step by step,Wall Street continues its slow march on the path to rolling back all of the important consumer and market protections put in place after the 2008 financial collapse. These big banks are making record profits but that just isn’t enough for them. They are hell bent on regaining the ability to gamble, knowing it’s other people’s money on the line. Worse still, it looks like President Trump and his appointees are doing everything they can to reopen the casino,” said Karl Frisch, executive director of the consumer advocacy organization, Allied Progress.
He continued, “The Volcker Rule is hated by big banks because it forces them to engage in less risky behavior. They couldn’t care less that their previous actions led to millions of Americans losing their jobs, retirement savings, and homes. The President promised he would fight powerful financial interests on behalf of everyday Americans – instead he’s done the opposite. With more than half of its board seats still vacant, the Fed shouldn’t have even considered this controversial change.”
What You Need To Know:
- The Volcker Rule is working as intended and causing banks to engage in less risky behavior. The Volcker Rule “appears to be working” and “has significantly limited the type of activity it was meant to curtail.” Banks have engaged in less risky trading compared to the time prior to the Volcker Rule, and this appears to be in line with investors wishes.[Stephen Gandel, “Volcker Rewrite Only Widens Existing Loopholes,” Bloomberg, 05/15/18]
- The Fed is currently operating with just three out of a possible seven members – a historical anomaly. It is an “historical anomaly” that the Federal Reserve Board of Governors has four openings. Such vacancies cause problems because there are “fewer people to staff committees…and oversee central bank business.” [Jeanna Smialek, “The Headaches a Three-Person Fed Board Would Face,” Bloomberg, 09/21/17]
- Prior to the Obama Administration, there was never “more than two simultaneous vacancies” on the Federal Reserve Board of Governors. “The tradition of maintaining a fully staffed Fed has diminished over time… Before the Obama administration, there had never been more than two simultaneous vacancies. Obstructionism in the Senate and a lack of urgency at the White House combined to create a new normal at the Fed: empty seats.” [Peter Conti-Brown, “Too Many Empty Chairs at the Federal Reserve,” The Wall Street Journal, 10/04/17]
- Despite these missing board members, the Republican led House of Representatives isseeking to give the Federal Reserve sole authority over the Volcker rule. Despite numerous regulators having an interest in the rule, The US House of Representatives has already approved legislation that would “would make the [Federal Reserve] the sole regulator in charge of the Volcker Rule.” Recently, “House lawmakers succeed in slipping it into [a] spending bill,” improving its chances for passage in the Senate.[Elizabeth Dexheimer, “S. House Considers Adding Volcker Rule Shift to Budget Bill,” Bloomberg, 05/21/18
- There was clear legislative intent for multiple agencies to be involved when drafting and creating the Volcker Rule. When the Volcker Rule was being drafted as part of Dodd-Frank, Senators Jeff Merkley and Carl Levin had originally proposed that only the Federal Reserve and the FDIC would be responsible for writing the rule. Within the conference committee however, the Merkley-Levin provisions were “modified”and the CFTC, OCC, and SEC were added as additional agencies responsible for the rule, indicating that having multi-agency input on the Volcker Rule was what Congress specifically intended. [“A Better Path Forward on the Volcker Rule and the Lincoln Amendment,” Bipartisan Policy Center, October 2013]
- Some sources claim that up to 21 individual regulators needed to sign off on the Volcker Rule’s language before it became law. According to Public Citizen, “21 individuals nominated by the president and confirmed by the U.S. Senate (serving at the Federal Reserve, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Commodity Futures Trading Commission, or Securities and Exchange Commission) must agree to the precise language of [the Volcker Rule].”[Business as Usual 99.9 Percent of Banks Would Be Unaffected by Volcker Rule, Public Citizen, 2012
- Fed Vice Chair Randal Quarles has said he would recuse himself on matters involving Wells Fargo. Even though he claims to have divested his bank holdings after being confirmed to the Federal Reserve Board, due to concerns over his bank relationships, Randal Quarles announced that he would recuse himself from any matters relating to Wells Fargo while serving on the Federal Reserve Board of Governors. [“Vice Chairman Quarles will voluntarily recuse himself from participating in matters specific to Wells Fargo to avoid even the potential appearance of a conflict of interest,” Federal Reserve, 12/15/17]
- Wells Fargo has expressed an interest in the Volcker Rule and admitted that it could reduce their revenue. Wells Fargo lobbied on regulations related to the Volcker Rule throughout in 2014. Specifically, they lobbied on the “Volcker Rule treatment of Collateralized Loan Obligations.” Wells Fargo has also admitted that the Volcker Rule, and it’s bans on proprietary trading and “private fund investment activities,” may reduce their revenue.[“Q2 Lobbying Report for Wells Fargo,” Lobbying Disclosure Act Database, 07/21/14;“Q4 Lobbying Report for Wells Fargo,”Lobbying Disclosure Act Database,01/20/15Wells Fargo & Company 2017 Annual Report, Wells Fargo & Company, 2017]
# # #