Volcker Rule Approved Amid Vocal Dissent
All five regulatory agencies put their stamp of approval on the Volcker Rule yesterday, effectively ending proprietary trading by banks and holding their chief executives more accountable for trading activities. The rule will go into effect on April 1, 2014, though the compliance date will be delayed until July 21, 2015. Starting in June 2014, large banks will be required to begin reporting certain information to show they are working to comply with the rule.
Though the rule was approved, it was not without dissent. One of the loudest voices among those opposed to the rule was the CFTC’s Scott D. O’Malia, who wrote in a statement:
“I believe the Commission must get back to the basics of good government and proper rulemaking. I cannot vote for a final rule that is hardly the product of meaningful consideration by the full Commission, but instead was negotiated exclusively by the Chairman. In addition, I cannot vote for a final rule where the Commission has not devoted enough attention to providing sufficient clarity and due process in the enforcement of new and untested regulatory authority, but still imposes significant obligations upon market participants at an unknown—but surely considerable—cost.”
The reaction on Wall Street was relatively muted, since most banks have already moved away from proprietary trading operations. One senior bank executive quoted by the Financial Times summed up the sentiment:
“We think this is killing a fly with a hammer but we’re not going to re-litigate that point now. It’s clear that the technicians at the regulators made a sincere effort to improve it.”
Right now, the wild card for market participants is the seemingly large degree of latitude regulators will have in interpreting the new rule. As the American Bankers Association president Frank Keating commented:
“Many bankers will struggle to understand complex provisions that have no application to their business model and are open to conflicting interpretations.”
That room for interpretation may not be a bad thing for Wall Street as they embark on a year-and-a-half digestion period before the rule will be enforced. Overall, both regulators and market participants have managed to find silver linings in the final version of the rule. As Bloomberg explained:
“Both Wall Street and Washington, poring through the Volcker rule’s almost 1,000 pages of legal-speak on terms like market-making and portfolio hedging, can find reasons to claim victory.”
Statement of Commissioner Mark Wetjen on the Volcker Rule
Dissenting Statement of Commissioner Scott D. O’Malia
Statement of Support of Chairman Gary Gensler on Volcker Rule