Volcker Rule’s Ban on Proprietary Trading Is a Direct Attack
on the High Risk ‘Quick-Buck’ Culture of Wall Street
“For more than three years, Wall Street’s too-big-to-fail banks and their army of allies used their power, money and might to defeat the Volcker Rule, and they lost. Today’s finalization of the Volcker Rule ban on proprietary trading is a major defeat for Wall Street and a direct attack on the high risk ‘quick-buck’ culture of Wall Street that focuses on big short-terms gains regardless of the risks to others. As a result, some of the most common and dangerous gambling at taxpayer-backed banks is now prohibited. Wall Street’s too-big-to-fail banks may try to evade, bend or break the rule, but they cannot legally make big bets looking for big bonuses and stick the U.S. taxpayer with the bill when those bets go wrong,” said Dennis Kelleher, President of Better Markets, Inc., an independent nonprofit organization that promotes the public interest in the financial markets.
“Details matter, but key principles are embedded in this rule. The rule recognizes that compliance must be robust, that CEOs are responsible for ensuring a compliance program that works, that compensation must be limited, and that banned proprietary trading cannot legally be disguised, as market making, risk mitigating hedging or otherwise. Those requirements will not end all gambling activities on Wall Street, but should limit them and reduce the risk to Main Street,” Mr. Kelleher said.
“This is not a perfect rule, but none are. Any rule involving five agencies and 22 principals is going to have numerous compromises and will be a work-in-progress. Plus, Wall Street’s loophole lawyers and other hired guns will irresponsibly continue to hit at the rule as if it were a piñata. But, make no mistake about it: regulators now own the Volcker rule. They have to aggressively enforce it, ensure it is complied with or answer for any future blowups. Accountability on Wall Street and Washington is essential. If regulators fail again, then they must pay for that failure with their jobs,” said Mr. Kelleher.
“Importantly, passing the Volcker Rule does not mean financial reform is complete or that the American people are no longer at risk of another financial crash due to Wall Street’s recklessness as happened in 2008. No one rule can do that. Regulators must still enact and enforce strong capital, leverage, liquidity and wholesale funding rules, implement the many finalized derivatives rules, as well as resolution plans and limits on counterparty exposure, among others. In addition, the American people are still waiting for responsible leadership from the CEOs and board members of Wall Street’s too-big-to-fail banks to embrace financial reform and work together for a safer, sounder banking system that does not risk another crash and a second Great Depression. The American people have suffered enough and deserve no less,” concluded Mr. Kelleher.
Better Markets is an independent, nonprofit, nonpartisan organization that promotes the public interest in financial reform in the domestic and global capital and commodity markets. Better Markets advocates for transparency, oversight, and accountability with the goal of a stronger, safer financial system that is less prone to crisis and failure, thereby eliminating or minimizing the need for more taxpayer funded bailouts.