The American Bankers Association (ABA) urges federal agencies to “revise” the Volcker rule, as outlined in a motion of stay directed to the Board of Governors of the Federal Reserve System (BGFRS).
This “emergency motion” was filed because the ABA is concerned that the Volcker rule “will cause substantial, immediate, and irreparable harm to small community banks and the customers they serve.”
As the Volcker rule indicates collateralized debt obligations (CDO) as “ownership interest” which is perceived as a regulation that will affect community banks.
The ABA requests that federal and financial “agencies interpret the Volcker Rule in a manner that will minimize disruptions and costs to the banking system.”
The consideration for banks is to allow them to hold complex securities while simultaneously limiting derivative “investments”.
Frank Keating, president of the ABA stated: “[The] ABA appreciates the regulators taking this important step, and our experts are studying to see if the affected banks indeed find immediate interim relief from this action.”
With threats of legal action in their pocket, the ABA have made it clear that “it was seeking relief from a portion of the regulation that analysts, bankers and lawyers have said may force some financial institutions to dispose of certain types of investments which could result in write-downs for lenders.”
The smoke screen of dissention is thinly veiled as it was the bankers who have written the most integral rule that would reform their business practices.
Experts say that the Volcker Rule glosses over the fact that it was “trading mishaps” that were the “root cause of the financial crisis.”
Because of this, “the rule doesn’t go far enough . . . prohibition [will] draw a line, making it clear that banks’ business is about lending not investing.”
The Volcker Rule, within the Dodd-Frank law, is now being used by the president as a public relations ploy to give Americans a semblance of government oversight and the reining in of “risk taking after the financial crisis.”
The Volcker Rule was created by the banks and is “the rule that the banks wanted.”
The 2011 draft of the Volcker Rule was leaked by the American Banker Association (ABA).
Paul Volcker said he was “disappointed with how the rule was turning out” and that he “didn’t expect the proposal to be diluted so much, said a person with knowledge of his views. He’s content with language that bans banks from trading with their own capital, the person said.”
Volcker contended that the rule should have “clear concise definitions, firmly worded prohibitions, and specificity in describing the permissible activities will be of prime importance for the regulators as they implement and enforce this law.”
In 2011, Senator Carl Levin co-sponsored the Volcker Rule and spoke to Congress about the importance of the regulation: “The Volcker Rule is essential to protect taxpayers from banks’ excessive financial risk-taking, conflicts of interest, and from the resulting billion-dollar bailouts. I look forward to reviewing the proposed rule and hope the regulators reject efforts to weaken the law.”
Volcker responded to critics, saying: “A lot of the criticism is over the complexity of the thing and, essentially it’s down to a lot of details. But the basic rule, of course, is incorporated in the law. And I think when you get all finished with this Sturm und Drang in the Congress now, I think you’re going to have a reasonable interpretation of a law and an interpretation that can be reasonably followed by the banks and enforced by the regulators.”
This past summer, Jacob Lew, secretary of the US Treasury, warned of a year’s end deadline on the Volcker Rule.
Lew said: “I want to mention that the Volcker Rule is particularly important, and I will continue to push for swift completion of a rule that keeps faith with the intent of the statute and the president’s vision.”