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Gutting the Volcker Rule Is A Huge Win for Wall Street's Biggest Banks

FOR IMMEDIATE RELEASE
Tuesday, August 13, 2019
Contact:  Christopher Elliott, 202-618-6433


 

Regulators Gutting the Volcker Rule Will Be Wall Street's Biggest Victory Since Being Bailed Out During the 2008 Financial Crisis


 

Washington, D.C.  –  Dennis M. Kelleher, President and Chief Executive Officer of Better Markets, issued the following statement with respect to the revised Volcker Rule expected to be finalized by regulators beginning with the Federal Deposit Insurance Corporation (FDIC) next Tuesday:

“Champagne corks are no doubt popping on Wall Street today as the most dangerous too-big-to-fail banks celebrate what will be their biggest victory since being bailed out during the 2008 financial crisis: the gutting of the Volcker Rule ban on propriety trading.  That will be great for Wall Street bonuses, but tragic for taxpayers.

“The FDIC just announced that it would vote next Tuesday to finalize a set of proposed revisions to the Volcker Rule, which have already been publicly reported to contain reckless, short-sighted, and legally baseless changes. 

“The Volcker Rule was supposed to ban high-risk proprietary trading, which is bankers placing bets with other people’s money.  When those bets won in the past, the bankers kept the winnings.  But when they did not, they shifted losses to the bank and taxpayers. 

“That upside down ‘heads I win; tails you lose’ compensation scheme incentivizes bankers to make the biggest bets in hopes of getting the biggest bonuses.  That’s how Morgan Stanley lost more than $9 billion on a single proprietary bet in December 2007, at the same time it was hemorrhaging losses due to subprime lending and derivatives. 

“Huge losses due to proprietary bets, derivatives gambling and reckless subprime lending were the primary causes of the 2008 crash and led to the failure or near-failure of Wall Street’s biggest banks, including Morgan Stanley, Goldman Sachs, Citigroup, Merrill Lynch, Bank of America and many more.  Every one of those banks had to be bailed out with trillions of dollars of taxpayer money and other government rescue programs. Remarkably, those are the very same banks that will benefit from the gutting of the Volcker Rule.

“The Dodd-Frank financial reform law was enacted in 2010 to prevent financial crashes and bank bailouts like 2008 from happening again.  The Volcker Rule ban on proprietary trading is a core pillar of stopping Wall Street gambling, endangering financial stability and protecting taxpayers.  Responsible regulators should be strengthening it, not gutting it as they are reportedly going to do beginning next week.”

For more information on the Volcker Rule, see Better Markets' Volcker Rule resource page.

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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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