What’s Going on With the Volcker Rule?

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Former Federal Reserve Chairman Paul Volcker. (AP Photo/Seth Wenig)

The Volcker Rule has hit a number of speed bumps recently. The rule is a proposed bit of regulation included in Dodd-Frank that would prevent banks from investing their own funds for profit, a practice called proprietary trading. It was designed to reinstitute some of the separation between investment banks and commercial banks that was lost when the Glass-Steagall Act was repealed in 1999.

When the rule was initially proposed by Paul Volcker, the former United States Federal Reserve chairman, it was estimated that it would cost big banks engaging in the practice about $4 billion dollars in pre-tax earnings annually. In October, the S&P released a report revising that estimate to $10 billion. According to Bloomberg, the S&P analysis looked at the profits of 8 U.S. banks, including JPMorgan, Goldman Sachs and Morgan Stanley.

JPMorgan’s $6 billion trading loss earlier this year was characterized by some in Washington as a “case study” on the need for more oversight. The S&P also noted in their report that “the implementation of the Volcker rule could have favorable implications for the credit profiles of some of the largest U.S. banks, such as reducing trading portfolio risk.” But some bank executives, including Morgan’s Jamie Dimon, contend that the restrictions are unnecessary.

Congress originally mandated that the Volcker Rule would go into effect in July 2012, two years after Dodd-Frank was passed. But the five regulatory agencies drafting the rule didn’t meet their deadline. In fact, the rule is still being drafted.

The regulators working on the rule recently estimated that it will be finished sometime during the first few months of 2013. But the rule-drafting process might be slowed even further by the Securities and Exchange Commission: Chairman Mary Schapiro will be stepping down this month, and without Schapiro the remaining four members of the commission will face a partisan divide that will slow down decision-making.

Last week, the chairman of the House Financial Services committee, Spencer Bachus (R-AL), and his successor as chairman, Jeb Hensarling (R-TX), sent a letter to regulators asking that the rule not go into effect until two years after the final version is finished being drafted. The House Financial Services committee also announced a hearing to look into the rule’s implementation, beginning Dec. 13.

Paul Volcker appeared on Moyers & Company last April. Watch the full interview below.

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  • http://www.facebook.com/patricia.spievak Patricia Spievak

    I truly wish that congress who stop their silly posturing to crazy people and get the work done. We have hired them to do a job up on Capitol Hill, I really do not understand.

  • LeeMrk

    These restrictions will be unnecessary when these banks are allowed to fail without taxpayers bailing them out. Until then, if I have to spend my tax dollars to bail these fools out, they damn well better be held accountable!

  • Janice Hill

    Big banks and corporate interest will do anything and I mean anything to stop or slow down the Dodd-Frank and Volcker Rule. Congress won’t get anything done because big money has bought them. Most of them could care less about what the people who hired them want. Its their jobs they want to protect.

  • Anonymous

    When a banker CEO says something is unnecessary? DENIAL should be brought into the Equation!

  • Anonymous

    Bill Moyer and Company thank you, Merry Christmas and Happy Holidays to all. Am so grateful that you continue to keep us informed of the ‘real’ news. Especially thank you for having Matt Taibbi, I read his book “Griftopia” along with some of his articles in the Rolling Stones, all I can say is wow. He verified what I thought I knew about Greenspan, Wall Street and both sides of the Political aisle. I’d like to see a much stronger Dodd-Frank and The Volcker Rule, which to my thinking was gutted by Wall Street through their Lobbyist money to the Majority in DC.
    Also, get Goldman Sachs out of the Whitehouse and Congress, after seeing NPR’s “THE Warning”, and what Goldman Sachs continues to do I’m just waiting for the next shoe to drop. This concentration of Banking power into less than 5 major Banks is another disaster just waiting to happen. Then you add in the Quantitative easing given to these banks, ‘interest free’ money is essence, who have only bolstered their bottom line along with outrageous bonuses instead of support the whole American economy = greed.
    How come Canada missed this global gutting/Ponzi/ Sting by the US(primarily) Bankers??, I know the answer from listening to Moyer & Co., “Because the Canadian government denied the changes the bankers wanted and guess what the Bankers still earn Millions.”

  • Anonymous

    “it was estimated that it would cost big banks engaging in the practice about $4 billion dollars in pre-tax earnings annually. In October, the S&P released a report revising that estimate to $10 billion” This statement on the face of it, is interesting, especially given the ‘earnings’ these Big Banks make now, not including what they made going into this fiasco and what they made off of TARP and Quantitative easing.
    Then they site “JPMorgan’s $6 billion trading loss earlier this year”….which I’d read, the actual loss was closer to $9 Billion and basically Jamie Diamon described as no big deal. So given just this thinking and the chance that we could avert further national and international depressions created by poor banking behavior we need these changes now.
    If Banks ‘Actually behaved well’ then this would not be an issue (don’t laugh so much). Historically they just don’t play well with others, they missed something in Kindergarten or it may be just be characterological (a core character or basic personality defect) and those with this thinking go into banking et. al., I don’t know. While over and over again they have worked behind the scenes to created the best outcome for themselves at the expense of everyone. They characterize themselves as being like you and me and the government is out to get them through legislation and regulations, so they need us to protect them, all the time while paying Lobbyist to pay off anyone in DC and around the country that can help them make changes in regulations that support their own end at our expense. We need the Volcker Rule now, not in 2 years.

  • http://www.facebook.com/jamestennier James Tennier

    Why did GS and JPMorgan get a “banking license” at that critical point in time is the WHOLE POINT. Take the license (that is the government guarantee) back and let them change their names to GP Casino and JPM Casino…

  • http://www.facebook.com/jamestennier James Tennier

    Just get rid of $4,000,000,000.00 “worth of banksters! This isn’t rocket science folks!

  • http://www.facebook.com/jamestennier James Tennier

    Aah, but you miss the broader paradigm here. It’s the demographics. The voters are not what the republicans make them out to be, as the demographics change the rs will become less and less relevant. The question is, will we still have a country left?

  • http://www.facebook.com/jamestennier James Tennier

    When pigs fly sir, when pigs fly. Until such time, we are the answer. We must educate ourselves on the benefits of a broad based “public banking system,” circumventing the need for todays version of what ever it is that they are, from ever hurting the taxpayer again If getting rid of huge bonuses is the price we pay as a nation, so frigging be it!