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Financial Regulators Should Not Open New Loopholes in the Volcker Rule Allowing Wall Street’s Biggest Banks to Engage in Speculative Activities

FOR IMMEDIATE RELEASE
Monday, April 13, 2020
Contact: Pamela Russell at prussell@bettermarkets.com  
 

Washington, D.C.  –  Dennis Kelleher, President and CEO of Better Markets, issued the following statement regarding the covered funds exclusions from the Volcker Rule ban on proprietary trading proposed by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and the Commodity Futures Trading Commission (“Agencies”):

The only reason we do not already have a financial crisis in the middle of the coronavirus health and economic crises is because the Dodd Frank Act and previous regulators imposed rigorous rules on banks and other financial firms.  A key pillar of those reforms, along with increased capital and liquidity, was the Volcker Rule ban on taxpayer-backed banks from engaging in high-risk proprietary speculative bets (‘prop trading’), which endanger the banks and the financial system while making bailouts more likely as happened in 2008. 

“The goal of the Volcker Rule is simple: protect taxpayers by reducing the reckless, bonus-driven gambling culture that warps banking activities and bankers’ priorities away from socially useful banking to get-rich-quick, swing-for-the-fences trading and investments schemes. It was wisely designed to prevent both direct, inside-of-the-bank prop trading and indirect, outside-of-the-bank prop trading through investments in covered funds.

“Regrettably, the Agencies are nonetheless proposing a series of unjustified and dangerous loopholes to the rule, as we identified in a recently filed initial comment letter. Mischaracterized as innocuous ‘clarifications,’ the proposed changes actually open up numerous avenues for the avoidance or evasion of the rule, which Wall Street’s biggest banks are poised to exploit. Like 2008, taxpayers will again be on the hook for the inevitable future losses.

“Finally, given the significant uncertainty with respect to duration and effects of the COVID-19 pandemic, the evaporation of substantial wealth for working families, and the meteoric rise of unemployment claims since the proposal’s publication on Feb. 28, 2020, the Agencies should postpone any action on the proposal until the emergency and its aftereffects are known and over. At that point, the Agencies should reconsider their proposal allowing taxpayer-backed banks to increase their speculative exposures to various types of outside private investment vehicles in light of the fact that many of them are now failing and seeking bailouts. The impact on bank balance sheets has been very limited thanks to the Volcker Rule’s prohibition on prop trading and exposure to covered funds in the years before the crisis. That proves the value and wisdom of those protections, which should not be weakened.”

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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.

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