FOR IMMEDIATE RELEASE
Monday, September 16, 2019
Washington, D.C. – Joseph R. Cisewski, Senior Derivatives Consultant for Better Markets, issued the following statement with respect to the Commodity Futures Trading Commission’s (CFTC) adoption of the revised Volcker Rule:
“The CFTC today celebrated the anniversary of the collapse of Lehman Brothers by approving a substantially revised Volcker Rule that, in time, will undoubtedly facilitate proprietary trading by even the largest Wall Street financial institutions. The CFTC-approved rule’s narrowed Trading Account definition, so-called ‘presumptions of compliance,’ elimination of critical hedging requirements, and foreign bank accommodations collectively reinstate a self-regulatory framework for prop trading that inevitably will increase risks to banks themselves and the U.S. financial system as a whole.
“Of course, the Volcker Rule was supposed to do precisely the opposite: it was supposed to address the fact that the largest Wall Street banks have a ‘heads we win, tails you lose’ proposition, as most evidently on display during the 2008 financial crisis. Back then, if prop trading was profitable, bank management and shareholders were rewarded, often very significantly. But when prop trading resulted in unexpected losses and contributed to the insolvency or fragile condition of certain too-big-to-fail banks, policymakers felt compelled to look to the taxpayers to provide capital necessary to stabilize those institutions, prevent losses to depositors, avoid disruptions to the payments system, and contain adverse effects on other financial institutions and markets.
“The CFTC’s revised rule not only ignores that history but makes it a plain, continuing reality. And it suffers numerous other legal and philosophical defects as well. It is contrary to the letter and intent of the Dodd-Frank Act’s prohibition on prop trading; it is premised on an overly optimistic view of the compliance culture and risk management incentives at too-big-to-fail banks; it impedes effective supervision and enforcement; and it repeatedly cites and relies upon unsupported, self-interested, and incorrect or overstated assertions made by ‘well compensated industry lobbyists,’ as Paul Volcker reportedly emphasized to the current Federal Reserve Chairman earlier this year.
“The U.S. financial regulators have a responsibility to do better for the American people. In the midst of the longest economic expansion in recent U.S. history, it is a mistake to unleash the ‘animal spirits’ of Wall Street traders and bank executives too eager to take on short-term trading risks for greater returns and, in turn, larger bonuses and a better return on equity for a concentrated set of financial interests. Banks instead should be focused on, and compensated for, facilitating economic growth for the many, allocating capital to productive uses, and supporting consumers.”
Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com.
*This press release was updated on 9/17/2019 by Joseph R. Cisewski, Senior Derivatives Consultant at Better Markets.