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Financial Reform Newsletter: The Volcker Rule Is Working

Picture1.jpgThe Volcker Rule Ban on Wall Street’s Biggest Banks’ Gambling With Taxpayer Money Shouldn’t be Weakened because it is Working to Protect America’s Families, Taxpayers and Financial System

The wisdom and effectiveness of the Volcker Rule’s ban on proprietary trading can be seen since it was put into place: it has forced banks to shift from bonus-boosting but reckless short-term trading to socially useful lending to the real economy.  That financial activity is why taxpayers back banks in the first place: to support and enable economic growth that creates jobs and prosperity. 

Picture2.jpgThe Volcker Rule has been proved to be wildly successful as banks’ revenues and profits from lending have soared while trading activity has dramatically decreased.  Banks’ profits increased 13% last year before even considering the windfall from the tax bill, which, when added boosted bank profits just last year by an astounding 28%.  That was on top of huge bank profit increases year-over-year for years!  Indeed, just before these changes to the Volcker Rule were released, banks had their most profitable quarter ever, posting $56 billion in profits for the first quarter of 2018.

Nevertheless, without any basis other than Wall Street’s talking points, the financial regulatory agenciesPicture3.jpg have proposed to weaken the Volcker Rule.  However, SEC Commissioner Kara Stein’s dissent at the SEC cogently details the right issues to think about and the right questions Jackson.jpgto ask, highlighting how wrongheaded this weakening really is.  SEC Commissioner Robert Jackson and CFTC Commissioner Russ Benham also voted against the proposal to weaken the Volcker Rule.  Sen. Sherrod Brown gave a speech putting this latest deregulation into the larger context of the last crash and the meaning for hard-working Americans.  

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All that’s bad enough, but making it worse was Fed Governor Randy Quarles’ statement that this was just a first step.  We will be reading and commenting on this proposal and the other ones sure to follow, fighting to keep strong financial protections in place so that Wall Street cannot cause another catastrophe like it did in 2008.

 

Picture4.jpgIn Long Overdue Open Meeting, CFTC Takes Dangerous Steps Backward, Putting Stability of Financial System at Risk

In its first public meeting since November 2016, the Commodity Futures Trading Commission (CFTC) took a couple of steps backward when proposing two rules that will potentially weaken our financial system. 

As noted above, the CFTC voted to move forward with changes to the Volcker Rule, which sets us down a path that will lead to more risky trading that could ultimately once again result in a taxpayer-funded bailout of the biggest banks.  The CFTC also voted to move forward with a proposal to set at $8 billion in notional value the so-called “de minimis” threshold for registering swaps dealers.  The threshold had been set to drop to $3 billion, which would have required more entities to register as swaps dealers bringing with it stronger margin and capital requirements, reducing overall risk and making the swaps market safer and more secure.

The CFTC is proposing to keep the “de minimis” threshold at $8 billion.   As we have said in the past, only in Washington DCPicture6.jpg would $8 billion be thought of as “de minimis” when anywhere else it would be thought of as “de maximis”!  Making matters worse, the CFTC appears to be laying the groundwork for creating numerous loopholes to the calculation of “de minimis.”  If so, the rule will look like Swiss cheese that will not protect the financial system or the economy.

Commissioner Russ Benham voted against both rules, offering some carefully-considered thoughts, specifically about altering the swaps threshold.  He stated,

“The Commission has simply not articulated a sound rationale for moving abruptly forward on this rule proposal without fulsome consideration of its legal authority, potential risks, and possible alternatives.”

We will be commenting on both rules, seeking to make sure Main Street jobs, homes, savings and so much more are protected from Wall Street gambling and dangerous, unregulated derivatives.

 

Picture7.jpgPublic Access to the CFPB’s Consumer Complaint Database Is Vital to Protecting Consumers From Getting Ripped Off and Is Also Beneficial to Financial Firms

Maintaining the public’s access to the Consumer Financial Protection Bureau’s consumer complaint database is critical not just for the benefit of consumers seeking to resolve disputes with financial forms and even avoid getting ripped off to begin with, but also for the firms themselves as it alerts them to problems and deters future misconduct.

This message is the message we communicated to the CFPB after Acting Director Mick Mulvaney issued a request for information to officially put into motion his stated intention of closing off access to the database.

The CFPB’s database has proven to be an extraordinarily valuable tool for educating the public, affording consumers real relief for fraud and abuse, and incentivizing and equipping financial firms to better serve their customers in accordance with the law.  Most financial firms seek to comply with the law, treat their customers fairly, and address problems quickly, at the least cost and before they metastasize. The complaint database is a critical tool for financial institutions striving to achieve those goals: It provides an early warning system, alerting firms to problems that might not otherwise be discovered until they fester and spread undetected.

Moreover, the database, much like the rest of the CFPB under former director Richard Cordray, has been an overwhelming success.  It has helped over a million consumers resolve disputes with financial institutions: 97% of all complaints have received a response from the subject companies and 89% of all complaints have been resolved to the consumer’s satisfaction. 

The importance of public access to the database can be best found in speculating about how many fewer consumers would have been harmed if the database had been available to customers of Wells Fargo when checking accounts, savings accounts, and credit cards were all being opened fraudulently in their names, long before the Board and many members of senior management became aware of such practices.  Transparency and public information enhances a strong financial system with satisfied customers who have trust and confidence in the system.  Why would acting director Mulvaney destroy all that? 

 

Picture9.jpgBe There Next Tuesday, June 12th at Better Markets’ Event with Tailspin Author Steven BrillPicture10.jpg

Next Tuesday evening, on June 12, Better Markets along with Issue One and Open Secrets, will be hosting Tailspin author Steven Brill for in-depth discussion of the book with the Dennis Kelleher, president and CEO of Better Markets, Issue One President and CEO Nick Penniman, and OpenSecrets Executive Director Shelia Krumholz. All three organizations are featured prominently in the book as being among “those fighting to reverse” the people and forces behind what Brill sees as America’s fifty-year “tailspin.”

We hope you can make it.  For more information about the event, please reach out to Nick Jacobs at press@bettermarkets.com.

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