Volcker Rule Gaps May Leave Banks Uncertain About Trading Bans
Clea Benson, Meera Louis and James Sterngold (Bloomberg)
October 12, 2011

“More than a year after they began crafting the Dodd-Frank Act’s ban on proprietary trading by U.S. banks, regulators published the so-called Volcker rule while acknowledging that hundreds of questions remain unanswered. The proposed rule, written by four regulatory agencies and issued for public comment yesterday, would ban banks from trading for their own accounts. Banks would be allowed to make short-term trades for hedging or market-making while facing limits on investments in hedge funds and private equity funds. … ‘What you see over and over in this rule is a good principle in concept, and a step toward executing that principle,’ said Marcus Stanley, policy director at Americans for Financial Reform, a coalition of consumer groups. ‘And then they won’t close the loop by being clear about, ‘You cannot do this.’… Stanley, of Americans for Financial Reform, said the proposal could have helped mitigate the financial system’s meltdown if it had been in place prior to 2008. ‘Certainly there are parts of this rule that would have given regulators the power to crack down on things that were happening before the crisis,’ Stanley said. ‘But they’re also so vague that they wouldn’t have forced the regulators to act.’”

U.S. reveals Volcker rule’s murky ban on Wall St bets
Dave Clarke and Alexandra Alper (Reuters)
October 11, 2011

“U.S. regulators unveiled a ban on Wall Street banks’ trading for their own profit, but the long-awaited Volcker rule proposal was so complex that banks blasted it as unworkable and consumer groups dismissed it as too weak. On the other side of the issue, the consumer coalition Americans for Financial Reform said regulators warped a simple ban into a weak crackdown that is weighted toward preserving banks’ flexibility. ‘Unfortunately, the proposal issued today falls well short of what the Volcker Rule could and should achieve,’ AFR said.” Click here for more.

Regulators Advance Volcker Rule
Ben Protess (DealBook/NYT)
October 11, 2011

“Federal regulators on Tuesday took a much-anticipated step toward reining in risky trading on Wall Street, introducing a proposal that would prohibit federally insured banks from making certain types of bets with their own money. … ‘Unfortunately, this initial proposal does not deliver on the promise of the Volcker Rule or the requirements of the statute,’ said Marcus Stanley, policy director of American for Financial Reform, an advocacy group. … ‘The vagueness of the proposal, and the hundreds of questions it includes, also demonstrate that we are still in the middle of this process,’ said Mr. Stanley. ‘It’s important to use this opportunity to strengthen the rule – and to prevent Wall Street lobbyists from weakening it still further.’” Click here for more.

Regulators release plan for Volcker Rule limits on bank trading
Brady Dennis (Washington Post)
October 11, 2011

“Federal regulators unveiled a 298-page draft Tuesday outlining new rules to prevent big banks from trading for their benefit rather than on behalf of customers, nearly two years after the Obama administration endorsed such a measure. … The current proposal ‘is too weighted toward preserving bank freedom of action, rather than creating the changes in bank practice and culture required by the statute,’ Lisa Donner, executive director of Americans for Financial Reform, said in a statement. ‘We strongly urge major improvements in the final rule. The serious and widespread economic pain caused by the failures of our financial system, and the growing expressions of public outrage — with more and more people taking to the streets — help make it clear how important it is to get this right.’” Click here for more.

Behind Scenes, Battle for Face Time As Regulators Craft Rule’s Wording
Jean Eaglesham and Victoria McGrane (WSJ – subscription required)
October 12, 2011

“Tuesday’s announcement of the proposed Volcker rule came after months of meetings and letter-writing aimed at U.S. regulators. Now comes yet another burst of arm-twisting before the final rule is announced next year. Based on letter writing, Wall Street’s foes have a big advantage. But when it comes to face time, no one can top Wall Street. More than 7,800 members of the public sent comments to regulators writing the rule, according to Kimberly Krawiec, a law professor at Duke University in Durham, N.C. About 7,300 comments used similar wording based on a template created by public-interest groups. In contrast, financial firms and groups tied to Wall Street submitted just 60 comment letters about the Volcker rule. Wall Street’s biggest trade group, the Securities Industry and Financial Markets Association, gave regulators about 19,500 words, prepared with help from law firm Davis Polk & Wardwell LLP.  … On Tuesday, regulators announced a new comment period that ends Jan. 13. The comment period is likely to lead to another round of outside pressure, especially on more than 300 questions for which regulators are seeking public input. ‘One thing we do have going for us in this fight is that the public are on our side,’ said Marcus Stanley, policy director of public-interest group Americans for Financial Reform, referring to polls that show most Americans want tougher rules for Wall Street.” Click here for more.

Dodd-Frank Financial Regs Spark Positioning for 2012
Stacy Kaper (National Journal Daily AM – subscription required)
October 11, 2011

“The debate over the Dodd-Frank financial-reform law reignited on Tuesday as federal regulators proposed steps to tighten rules on big banks and other financial institutions, a fight that will resonate in this election cycle. Reform advocates feared that regulators were weakening efforts by Sens. Carl Levin, D-Mich., and Jeff Merkley, D-Ore., who fought to include the Volcker rule in Dodd-Frank. Critics said that the proposals appeared to expand loopholes that could allow banks to justify proprietary trades by taking advantage of wide latitude in defining permissible hedging activities. ‘This is just too weighted toward preserving bank freedom of action and limiting the reach of the proprietary ban rather than creating the changes in bank culture and the changes in practice that are clearly desired in the statute,’ said Marcus Stanley, the policy director for Americans for Financial Reform.”

Regulators issue proposal on Volcker Rule
Jim Kim (Fierce Finance)
October 11, 2011

“So what should we make of the Federal Reserve’s long-awaited proposed Volcker Rule, among the most controversial aspects of Dodd-Frank? Americans for Financial Reform, for example, said: ‘The experience of the past decade shows that for the rule to work (the) exemptions must be tightly controlled and carefully circumscribed. But in this proposed rule the exceptions to the proprietary trading ban are outlined in a broad and general way that leaves enormous scope for discretion by both banks and regulators. There is significant emphasis on bank self-regulation and few clear ‘bright lines’ for either regulators or bank managers to rely on. In addition, the proposed rule also adds major new exemptions not included in the statute.’” Click here for more.

Volcker Rule Is Out, How Much Will It Hurt?
Halah Touryalai (Forbes)
October 12, 2011

“An official draft of a rule that prohibits banks from the profitable business of trading with their own money was released this week and it’s leaving both banks and their critics unsatisfied. … Americans for Financial Reform, a group of more than 250 national and state organizations trying to ensure that financial rules are not watered down, says the proposed Volcker Rule doesn’t go far enough to keep banks from taking on too much risk. The group says that the exemptions in the rule are too broad and leaves room too much room for banks to act on their own discretion.”  Click here for more.

Why You Should Care About the Volcker Rule
Bruce Watson (Daily Finance)
October 13, 2011

“‘Kiss the dice, baby. Gimme a little luck,’ the banker whispers as he puts his money — your money — on the table. When the numbers come up, the chips go into his pile. When they don’t … well, some gamblers are just too big to fail. This week, the government took a big first step toward shutting down the Can’t Lose Room in the Wall Street Casino. The Volcker Rule, a proposal to limit the kinds of risky investments that banks can make, went before four government agencies. On Tuesday, the FDIC unanimously approved the rule, the Federal Reserve backed it, and on Wednesday, the Securities and Exchange Commission followed suit. The final version of the rule is now up for public comment for 60 days. …Americans for Financial Reform, a coalition group working to enact Wall Street reform, argue that the rule, as written, ‘leaves enormous scope for discretion by both banks and regulators.’ The rule’s vagueness and exceptions, they warn, “raise serious doubts about whether this framework will actually produce the significant changes in bank practices that we need.”” Click here for more.

Volcker Rule draft gets little respect
Ira Teinowitz (The Deal)
October 10, 2011

“Consumer groups and banking lawyers predict a long fight ahead as federal regulators get ready to unveil a plan to implement the Dodd-Frank Act’s Volcker Rule ban against banks engaging in proprietary trading. They suggested Friday that the 390 questions posed by regulators in a leaked draft of the notice of proposed rulemaking and banking industry concerns about some elements could make the proposal more ‘a work in progress’ than a final rule and that lobbying on what gets into the final version could be intense. … Marcus Stanley, policy director of Americans for Financial Reform, a coalition of consumer and labor groups, said his group, too, is concerned about the lack of specifics about what’s being banned. ‘We are both looking at the same core problem. There are very few bright lines.’ Stanley said his group is concerned that broad exemptions in the proposal for banks engaged in ‘liquidity management’ and ‘securitization’ and the lack of specifics could let banks engage in some of the same problematic practices that led to the Dodd-Frank law in the first place. The proposal ‘is too weighted for preserving bank freedom, rather than creating the kinds of changes that are contemplated by the statute,’ he said. Stanley suggested the proposal in requiring a lot of documentation by banks without restraining banks’ activities could be putting ‘form above substance,’ and he questioned whether it would have done much to prevent recent problems at UBS with a rogue trader.” Click here for more.