AFR Press Statement: Volcker Rule

DATE: October 11, 2011                                                  

CONTACT: John Carey at 202-466-1854          


AFR Statement on Volcker Rule

Washington, DC – Americans for Financial Reform, a coalition of more than 250 national, state and local organizations working together for strong Wall Street reform, issued the following statement today:

“The Volcker Rule, with its clear ban on both proprietary trading and conflicts of interest, is one of the  short list of places where the Dodd-Frank Act imposes an outright ban on Wall Street practices central to the financial crisis. Unfortunately, the proposal issued today falls well short of what the Volcker Rule could and should achieve. It is too weighted toward preserving bank freedom of action, rather than creating the changes in bank practice and culture required by the statute,” said Lisa Donner, executive director of Americans for Financial Reform.  “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,” she added.

The proposed rule does include some positive commitments in areas like controlling the use of trading accounts to stockpile risky assets, and designing trader compensation to limit negative incentives. But the vagueness of the proposed rule and the broad scope of the exceptions permitted raise serious doubts about whether this framework will actually produce the significant changes in bank practices that we need.

The statute itself includes exemptions from the proprietary trading ban for traditional practices like hedging and market making. The experience of the past decade shows that for the rule to work these 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.

The vagueness of the rule, and the hundreds of questions it includes, underline the fact that regulators are still in the midst of crafting a final product. Some of the questions they pose show pressures to weaken the rule even further, to the point of total uselessness.  Instead, we call on the regulators to revise the rule so that it accomplishes the goal of producing a safer financial system, and one that serves the real economy instead of preying on it.