Bank Lobby’s Onslaught Shifts Debate on Volcker Rule – Robert Schmidt and Phil Mattingly (Bloomberg)
March 26, 2012

“The fight over the Volcker rule is shifting in Wall Street’s favor.  After a four-month lobbying blitz led by firms including Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and Credit Suisse Group AG (CSGN), U.S. regulators and lawmakers are signaling they’re receptive to delaying and revising their plan to stop banks from making speculative trades on their own accounts.  Representative Barney Frank, a Massachusetts Democrat and co-author of the 2010 law mandating the ban, urged regulators last week to simplify their first draft, while a bipartisan group of senators proposed pushing back its effective date.  Banking executives have long seen the rule as one of the most threatening parts of the Dodd-Frank regulatory overhaul, an assault on a lucrative line of business that comes branded with a name, that of ex-Federal Reserve Chairman Paul Volcker, garnering worldwide respect. Compliance and capital costs alone could reach $1 billion annually, the U.S. Office of the Comptroller of the Currency has said. To make their case in Washington, banks and trade associations have been pressing a coordinated campaign to get regulators from five federal agencies to scale back the draft of the proprietary-trading rule issued in October, according to public and internal documents and interviews. They recruited money managers, industrial companies, municipal officials and foreign governments to their side.  ‘The regulators are under a lot of pressure,’ said Marcus Stanley, policy director of Americans for Financial Reform, an advocacy coalition that filed a comment letter urging that the draft rule be strengthened rather than watered down.  Stanley, a former congressional aide, said that his side has at most a couple of dozen people working the agencies and Congress. Meantime, he said, hundreds of banking representatives are enlisting their customers by warning that the rule’s fallout will be higher costs and less-liquid markets.’…Proponents of the rule say tough restrictions are the best way to ensure that the banks don’t use privileges like federal deposit insurance to subsidize their own profit-making and make risky trades of the kind that contributed to the 2008 credit crisis. U.S. Senator Jeff Merkley, the Oregon Democrat who with Senator Carl Levin, a Michigan Democrat, put the rule in Dodd- Frank, said there’s no evidence it would choke off liquidity in the markets. ‘The banks are using every strategy they possibly can’ to ‘confuse the issue,’ Merkley said. Bartlett Naylor, who works on financial policy at the Washington-based advocacy group Public Citizen, said his small band of Volcker supporters is highlighting the recent New York Times op-ed article by ex-Goldman Sachs derivatives salesman Greg Smith to show the need for a strong rule. The article, which Goldman Sachs said it disagrees with, accuses the firm of making trades against its clients’ interests to boost profits. ‘It comes from an insider who declares something that everyone knows or certainly has a suspicion of,’ said Naylor. ‘We have talked to everybody about it, and nobody we’re talking to hasn’t already heard about it.’ Click here for more.