August 13, 2019

The Volcker Rule Ban Stopping Wall Street from Gambling with Taxpayers’ Money

Introduction

Although still a work in progress, this is a comprehensive and frequently updated webpage for all things Volcker Rule, including proposed rules, comment letters, analysis, media, presentations and much more. It begins with a discussion of (1) current developments and activities; (2) the background of the rule, (3) the recent proposals to weaken the rule and Better Markets’ counterattack, and (4) lots of other background and historic materials related to the original ban and rule. While you can return here often for updated information, you can also stay up to date on the Volcker Rule (and lots of other) developments by signing up for our newsletter here.

Current Developments and Activities

On December 8, 2019, Paul Volcker passed away:

Statement of Dennis Kelleher on the Death of Paul A. Volcker

New Volcker Rule is Officially on a Pathway Towards Implementation (10/8/2019)

Five Agencies Publish a Final Rule (11/14/2019)
American Banker: Agencies sign off on final Volcker Rule changes (10/8/2019)

Recent Press Releases:

Quick Reference Guide Concerning New Volcker Rule Changes (8/20/2019):

Here Are the Key Wins for Wall Street in the Weakened Volcker Rule

Dissenting Views on the 2019 Revisions to the Volcker Rule (9/19/2019):

Dissenting Views on the 2019 Revisions to the Volcker Rule

In Oct. 2018, we filed a comment letter opposing Trump’s regulators’ proposal to gut the Volcker Rule:

Better Markets In-Depth Comment letter on Proposed Changes

Better Markets Summary of the Comment Letter

Better Markets analyzed the claims the financial industry has made regarding the Volcker Rule and compiled a set of facts that refutes those claims

Better Markets Facts v Myths Analysis

The Volcker Rule: Liquidity Impacts and other Myths Used to Carry Water for the Banks (long version)

Better Markets op-ed in American Banker Detailing Why the Proposed Changes are Harmful to Main Street and the Economy:

“Trump reopening Wall Street casino by weakening Volcker Rule“

Key News Clips on New Volcker Proposal:

Bloomberg: Volcker Revamp to Ease Banks’ Trading Rules, Path to Investments
Reuters: U.S. regulators to drop accounting test in ‘Volcker’ rewrite: sources
American Banker: Bankshot How a Volcker Rule rewrite could backfire
Forbes: The Volcker Rule Should Be Strengthened For Big Banks and Made Transparent

Background: The Ban Reining in Wall Street’s Biggest Banks is Enacted, But Wall Street Wants Big Bonuses & Fights Back

Stopping Wall Street’s biggest, most dangerous banks from high-risk gambling with taxpayer backed deposits was one of the most important provisions of the Dodd-Frank financial reform law. This is referred to as “proprietary trading” (or prop trading) and the ban is called the “Volcker Rule” after former Federal Reserve Chair Paul Volcker.

Prop trading can be difficult to understand, but it’s like taxpayers giving Wall Street’s biggest banks a credit card with no limit and telling them to go to Las Vegas to gamble. Wall Street is also told that it gets to keep all the winnings and taxpayers will get the bill for all the losses. Not only is that a really stupid deal that taxpayers would never knowingly agree to, but it actually incentivizes Wall Street to make the biggest, highest risk bets because they have only upside and no downside, i.e., the taxpayers take the losses. That’s the equivalent of prop trading; that’s why Wall Street loves it; and, that’s why the Volcker Rule prohibits it: to protect taxpayers and the financial system.

While the law was signed in the middle of 2010, financial regulators did not finalize the rule itself until Dec. 10, 2013, almost a full 3 and a half years after Dodd-Frank had been signed into law. It took this long because Wall Street banks and other large financial institutions fought the rule makers nonstop, trying to delay and weaken the rule as much as possible and, ideally for them, get as many loopholes in it as possible. After all, prop trading had been amazingly lucrative for Wall Street and, because their cost of capital was negligible because they used other people’s money (depositors), almost all the profits from prop trading funded Wall Street’s gigantic bonuses.

Nevertheless, the rule was finalized and the banks, for the most part, stopped direct, clear prop trading. For example, they shut down their “prop trading desks” and other labeled “prop trading.” But, the law also allowed a few specific “permitted activities,” including market making and hedging. While for decades those activities were well known and well understood, all of a sudden, the smartest, highest paid executives and bankers on Wall Street had no idea what they were. They claimed to be totally confused about those longstanding, core activities and prop trading. For example, JP Morgan Chase’s CEO Jamie Dimon was so totally flummoxed that he said he needed a lawyer and a psychiatrist to tell the difference!

This was all just part of a systemic plan to attack the Volcker Rule ban on prop trading. Wall Street banks and other large financial institutions take the long view and never give up. They view setbacks and losses as merely temporary. They are experts in the lobbying and influence industry that bends as many laws, rules and policies to their benefit. That’s why they have more than 30 trade groups and lobby organizations in Washington. They may suffer a setback here or there, but they spend hundreds of millions of dollars in lobbying, PR, campaign contributions, purchasing academics and so much more to keep what they have already won and to win tomorrow what they might have lost yesterday.

That’s what has been going on since the day the Volcker Rule was finalized in December of 2013. It has been the focus of nonstop and widespread attacks by the industry, their political allies and purchased collaborators. These attacks have mostly been at the regulatory agencies and in the media, but Wall Street’s congressional allies have been very active battering rams as well. For years, those efforts have interfered with and slowed down implementation, interpretation and enforcement of the rule, but Wall Street has nevertheless been largely made to comply. The result has been significant compliance.

That, however, has not stopped the industry from continuing its war against financial reform, with the Volcker Rule a top target. Those years of effort paid off when, on May 30, 2018, the Trump administration financial regulators responsible for the Volcker Rule (the Federal Reserve Board, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency) proposed significant and dangerous changes to the rule.

Trump’s Financial Regulators Propose to Weaken the Volcker Rule Ban and the Counterattack Led by Better Markets

Trump’s regulators first attack on the Volcker Rule was in August 2017 when the Office of the Comptroller of the Currency (OCC) issued a so-called Request for Information regarding possible revisions to the rule. Better Markets responded a month later with a detailed defense of the rule, rebutting what were barely disguised industry arguments and claims.

During this time, Better Markets repeatedly called out the false and misleading claims being made by Wall Street and the financial industry in a series of Newsletter articles highlighting that Dodd-Frank was working and that the financial industry was not only more stable, but flourishing.

Knowing how popular financial reform was and how the American people did not want to unleash Wall Street’s biggest banks, even the industry’s biggest Washington lobby and trade groups didn’t dare publicly call for repealing the Volcker Rule. At a House Financial Services Committee hearing in March of 2017, SIFMA and the US Chamber of Commerce were directly asked if they believed the Volcker Rule should be repealed. Their public answer was no, albeit reluctantly, which we highlighted:

Demonstrating their typical MO of never giving up, Wall Street and its allies continued to pound the regulators non-stop and rallied once President Trump flip-flopped from Candidate Trump’s promises to get tough on Wall Street. Once Trump embraced Wall Street — effectively merging the White House with Wall Street by moving the President of Goldman Sachs into an office steps away from the Oval Office — the industry was emboldened, and it was empowered to attack financial reform from the inside as well as the outside.

The result was in early 2018 the Trump administration’s 689 page Volcker Rule proposal (with 342 questions) to weaken the Volcker Rule, which they tried to ram it through with just 60 days for the public to comment. This was grossly insufficient, particularly when compared to the 40-month process undertaken when the original Volcker Rule was considered and finalized. Better Markets immediately fought back, coordinating an effort to get the regulators to provide more time for public input. Joined by the Center for American Progress, Public Citizen and Americans for Financial Reform, we won that fight and got an additional month for comments.

Initial Reaction to Proposed Changes to Volcker Rule

Better Markets Initial Press Release Reacting to the Newly Proposed Changes to the Successful Volcker Rule

KEY ARTICLES:

Better Markets Leading the Fight for an Extension of the Public Comment Period

KEY ARTICLE:

Over the course of the summer and into the fall of 2018, Better Markets continued to highlight why weakening an already successful financial protection rule is not only reckless, but needlessly puts Main Street Americans back into harm’s way:

Shortly after the newly proposed rule was announced, Better Markets turned to analyzing the proposal, researching the issues and, ultimately, drafting, finalizing and filing a detailed comment letter on October 17, 2018. However, this is just the beginning of Better Markets’ fight against Wall Street’s attempt to rollback this critical reform. (For more details on what Better Markets will be doing, read about its Arc of Advocacy in its Annual Report at pps. 14-15.) Here are the initial materials on the first counterpunch:

Key News Clips on New Volcker Proposal:

Reuters: Banks urge U.S. regulators to reconsider ‘Volcker Rule’ tweaks
Politico Pro: Banks blast proposed Volcker changes for overly broad application

Past activities, historic information and materials related to the original Volcker Rule ban and rule

Better Markets has been involved in fighting for a strong Volcker Rule ban on Wall Street gambling with taxpayer money from the beginning. Some of our extensive work on shaping and now protecting the Volcker Rule can be found below:

Better Markets Activity on Volcker Rule Finalization and Immediately After

On Finalization

Press Release: