Volcker Rewrite Only Widens Existing Loopholes

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Summary

A relaxation of the Volcker Rule was on the Treasury Department’s bank regulator rollback wish list that it put out last year. But don’t shed too many tears over the proposed change in the Volcker Rule. Forcing regulators to use their own judgment as to what is a prop trade may make the right regulators more active in policing it. Nonetheless, in the four years since it has been around, the implementation of the actual Volcker Rule, the one that is more than 70 pages long (though not 800 as critics often claim) has been more about process than principals. Lots of trades that look like proprietary trading have been nonetheless deemed doable under Volcker in part because, by the letter of the law, they’re allowed.

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The Volcker Rule — which limits banks from risking their own, and more importantly, their depositors’, money on the trading floor — was always supposed to be a regulation that was all about what feels right. Former Federal Reserve chairman Paul Volcker said as much when he advocated for the rule shortly after the financial crisis, equating proprietary trading to pornography with the old line that you know it when you see it.

Nonetheless, in the four years since it has been around, the implementation of the actual Volcker Rule, the one that is more than 70 pages long (though not 800 as critics often claim) has been more about process than principals. Lots of trades that look like proprietary trading have been nonetheless deemed doable under Volcker in part because, by the letter of the law, they’re allowed. The rule has lots of gray areas. I made a list of them a few years ago. But there are more recent examples.

Take the recent controversy around Hovnanian Enterprises...

Read the full article @ The Washington Post