Big Banks Win Again: Volcker Rule Gutted

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Regulators stripped down rules put in place following the Great Financial Crisis that restricted speculation.

In a major win for big banks and Wall Street U.S. Regulators Gut the 'Volcker Rule'.

U.S. banking regulators on Tuesday approved changes easing a rule introduced after the 2007-2009 financial crisis that bans banks from trading on their own account, giving Wall Street one of its biggest wins under the Trump administration. The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) approved the revamped version of the so-called “Volcker Rule,” which aims to ban lenders that accept U.S. taxpayer-insured deposits from engaging in proprietary trading.

The changes, first proposed in May 2018, followed years of lobbying by banks, including Goldman Sachs Group Inc (GS.N), JPMorgan Chase & Co (JPM.N) and Morgan Stanley (MS.N), which have long complained the rule is too vague and complex.

FDIC commissioner Martin Gruenberg, a Democrat who backed the Volcker rewrite proposed in May 2018, voted against the final rule Tuesday, saying it would “effectively undo” the rule’s protections. The other three FDIC board members, all Republicans, voted in favor.

“Trump regulators continue to open a Pandora’s box of risky trading and speculation at the expense of American taxpayers,” Senator Sherrod Brown, the top Democrat on the Senate Banking Committee, said in a statement.

Analysts say the final rule, which is significantly different from the proposed 2018 version, could also be vulnerable to legal challenges. The final rule scraps that proposal for large Wall Street firms, instead simplifying the original test and only applying it to much smaller banks. At the same time, the rewrite simplifies a separate part of the rule which makes it easier for banks to invest in hedge funds or private equity funds.

Details Scant

The details presented are scant and I don't doubt that regulation may have been overdone.

In general, I am against regulation except where the purpose is to prevent fraud and misuse of client funds.

I am also against FDIC but I am in favor of 100% reserves on customer deposits which would eliminate leverage totally.

So go ahead and scrap the rules but replace them with an even simpler rule demanding 100% reserves and no leverage.

Just in the Nick of Time

With a recession at hand and stocks overvalued beyond belief, banks can once again trade against their customers and invest in hedge funds.

Wait a second, only big banks.

It was a complete victory for the big banks, against customers.

Mike "Mish" Shedlock

Comments (47)
No. 1-21
dbannist
dbannist

I also support the 100% reserve requirement.

Will it happen? Never. Too much short term pain is required which will come out at the ballot box.

However, my wife's grandfather lost 300k from bank failures during the 2007-08 crisis. Yes, he had too much in one account, but in a world that doesn't have fractional reserve lending, it wouldn't matter. FDIC insurance is only needed when irresponsible banks lend irresponsibly.

hmk
hmk

Without leverage loans would grind to a halt. Giving out a loan with good collateral is generally a safe bet and I would hate to see the economic ice age that would result if no leverage by the banks was allowed

Jojo
Jojo

Trump scores again! It will take decades to fix all the damage he has done once we get rid of him.

Jojo
Jojo

The Dow Drops By: bob | 2019/08/14

This is what happens when you put an amateur behind the wheel.

Government is a professional job, and Hillary Clinton was demonized by the right for thirty years to the point where she could not win the election.

Oh, don’t tell me how she won the popular vote, don’t even tell me about Russian intervention, the truth is she lost. Democrats play by the rules, Republicans know that rules should be broken. And for all you on the straight and narrow, ever notice that the tech titans, almost all Democrats, break the rules on a consistent basis? Wasn’t that the mantra of Facebook, “move fast and break things”? And today’s paper says that Facebook was transcribing audio, it hired outside people to do it…didn’t anybody know this was wrong? That’s like saying if I hire someone else to kill my wife, it’s not my fault. The techies play offense, and then apologize when they get caught crossing the line.

The Republicans define the game.

Forget the Trump base COMPLETELY!

.....

Blurtman
Blurtman

They serve man.

Mish
Mish

Editor

"FDIC insurance is only needed when irresponsible banks lend irresponsibly."

Bingo. It contributed to excessive risk taking but many other factors involved as well. It took time

Roger_Ramjet
Roger_Ramjet

It's staggering to see how humans are seemingly incapable of learning from past experiences and making permanent and rational adjustments to prior failed policies.

I don't know, but maybe we should just turn the whole shabang over to AI computer programs, because the "intelligence" part somehow evades human comprehension.

ElPendejoGrande
ElPendejoGrande

Who knew armageddon would come with circus music accompaniment?

2banana
2banana

Reinstate the Glass Steagall Banking Act (repealed by Bill Clinton).

"The details presented are scant"

Ok - what are we complaining about?

Tony Bennett
Tony Bennett

"Just in the Nick of Time"

...

Indeed. Now Kudlow can breathe a sigh of relief.

Only a matter of time before he is bleating: Taxpayer must give a blank check to Wall Street, or civilization as we know it ENDS.

Realist
Realist

Next, the Army Corps of Engineers will begin dismantling all the levees and sea walls that protect those at risk of flooding. Let’s keep removing anything that protects the public and leave them to fend for themselves. Survival of the fittest.

Tony Bennett
Tony Bennett

Contingent Liabilities.

One of the few things Alan Greenspan uttered that you knew to be true. Said when looking at USG debt / entitlement mountain not the entire picture of USG balance sheet. USG needs to prepare to assume balance sheets of very large entities (read: banks) that if failed could wreck markets / economy (and why he was pissed at GM bailout. Wanted status reserved for Wall Street). If banks have this implicit back stop there should be an extra layer of supervision / regulation.

All this could be avoided if the Kaufman amendment had passed on Frank - Dodd. Amendment would have broken up banks. No bank's balance sheet could be greater than 2% of GDP. When this failed I knew Frank - Dodd was toilet paper and TBTF cemented.

Casual_Observer
Casual_Observer

Another win for big (not small) business. Big banks can now take more risk and thus will attract investments they otherwise wouldn't have. I say let us have no regulations . The over/under on a flash crash would be about 2 business days in that scenario.

JonSellers
JonSellers

"So go ahead and scrap the rules but replace them with an even simpler rule demanding 100% reserves and no leverage."

That negates the very purpose of banks. You might as well nationalize them and have the government initiate most loans.

RonJ
RonJ

"It was a complete victory for the big banks, against customers."

Customers can create their own big victory and terminate their accounts with big banks.

RonJ
RonJ

"The details presented are scant and I don't doubt that regulation may have been overdone."

Regulation was overdone, but Greenspan took lending standards to ZERO and the SEC gave leverage waivers to the BIG INVESTMENT BANKS after which they went to town and recklessly leveraged up to as much as 30 to 1, at which a 3% loss bankrupts. They all naturally crashed as a result- which is why the SEC leverage limit was set at 12 to 1 in the first place. Overdone begets overdone.

michiganmoon
michiganmoon

I have only recently become interested in economics and don't know as much as you Mish, but if you had to have 100% reserves would there be enough abilities to give loans to people for cars and homes? Would the banks make enough to offer interest on top of paying employees?

Sechel
Sechel

Bankers are like little children with a box of chocolate. If given the opportunity they would eat continuously until they all throw up on each other. There's very little self control and regard for consequences. And why should there be? They know the tax payer will bail them out time and time again

Sechel
Sechel

Banks get bailed out once a decade. That fact seems to escape the regulators and elected officials. Volcker rule wasn't perfect but this is worse. We really should have gone back to Glass-Steagal

Expat
Expat

LOL. Trump supporters crow about deregulation and then whine like little bitches when someone mentions the Financial Crisis bailouts and the trillions of dollars gifted to the banks. I suppose you guys are simply too stupid to understand that they go together. Or perhaps so naive that you really believe that Wall Street will self-regulate and that banks won't get bailed out again when it all falls apart. You're so cute when you're stupid.