The Securities and Exchange Commission approved a joint regulator proposal to amend the Volcker Rule on Tuesday but the two Democrats on the commission did not play along with the Republican majority.
The SEC was the fifth agency to approve the reversal of key provisions of the Volcker Rule restrictions on bank proprietary trading, by a vote of 3 to 2. The two Democrats who voiced their dissent follow another ‘no’ vote on Monday at the Commodity Futures Trading Commission from Rostin Behnam, the CFTC’s only current Democratic commissioner.
The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency unanimously approved the package of proposed changes last week.
Read: Here’s what’s inside the Fed’s attempt to streamline the Volcker Rule
Lael Brainard, who was considered a candidate to be treasury secretary were Hillary Clinton elected president, voted at the Fed for the proposal.
The proposed amendments to the Volcker Rule will still prohibit proprietary trading by banks, defined as purchasing or selling financial instruments with the intent to profit from short-term price movements. The proposal is intended to clarify what is covered under this prohibition for banks and regulators.
The SEC’s Kara Stein said that the proposal is “antithetical to what the law was written to accomplish.” Stein also quoted the SEC’s proposal itself, which acknowledges that “the proposed amendment could increase moral hazard risks related to proprietary trading by allowing dealers to take positions that are economically equivalent to positions they could have taken in the absence of the 2013 final rule.”
Robert Jackson, recently appointed as the second Democrat at the SEC, questioned why regulators were already making changes to regulations adopted fairly recently when additional Dodd-Frank rulemakings that have been required by law for years remain unfinished.
“In fact,” said Jackson, “full compliance with the Volcker Rule was not required until July 2015, and now, less than three years later, we are pulling it back—before finishing rules Congress required us to complete years ago.”
Jackson is referring to executive compensation reform, in particular the new rules about banker incentive compensation limits that have been shelved despite being mandated by the crisis-reform law.
Lisa Gilbert, vice president for legislative affairs at the progressive think tank Public Citizen, said in a statement, “Commissioner Jackson rightly identifies Washington’s inaction on banker pay reform as yet another reason a Volcker Rule rollback is nonsensical. Congress approved Dodd-Frank in 2010 and set a deadline for decoupling risky banker behavior from bonus pay by 2011. The SEC and other agencies are glaringly behind in the work to regulate excessive pay; and while risky activity can still garner massive incentive compensation, it is even more inappropriate to weaken the safeguards in the Volcker Rule.”
In a statement read at the SEC open meeting, Jackson also strongly criticized what he called “reed-thin” economic analysis in the proposal, noting that “the most common calculation in the economic analysis released today is multiplication of an attorney’s hourly fee by the number of hours an attorney will work on Volcker compliance.”
Stein also highlighted the inherent contradiction of the bank lobby’s rationale for simplifying the Volcker rules. “The argument put forth by the banks,” said Stein at the open meeting, “is that the current rule is simply too complicated and difficult for our modern banks to comply with. These are the same banks, by the way, that can create complicated financial instruments in short order at the demand of a client.”
Source : MTV
