Volcker Tells Charlie Rose: The 'Volcker Rule' Still Works

Despite ‘complications,’ rule governing bank proprietary trading has not been diluted

Lobbying efforts notwithstanding, the Volcker Rule is still effective, according to no less an authority than Paul Volcker, for whom it was named.

He said as much when asked about changes made to the rule since its original proposal in an interview with Charlie Rose on Monday. Intense lobbying has brought changes to the rule, and many have voiced concern over it, including banks, who believe that it is too complicated, and advocates, who believe that it is no longer effective.

Paul VolckerThe Volcker Rule, according to the Treasury Department, is a segment of the Dodd-Frank law “that prohibits banking entities that benefit from government protections—such as FDIC insurance on customer deposits or access to the Federal Reserve discount window—from engaging in proprietary trading and from certain relationships with hedge funds and private equity funds.”

Mandated under Section 619 of the Dodd-Frank act, the rule was SEC Chairman Mary Schapiro said Wednesday that the Volcker rule’s “implementation would be a step forward in reducing conflicts of interests between the self-interests of banking entities and the interests of their customers.” The statute, she said, “is aimed at constraining banking entities’ proprietary trading, protecting the provision of essential financial services and promoting the stability of the U.S. financial system.”

Banks have protested that the rule would hurt business and make it impossible for them to grow, but Volcker contradicted that view emphatically on Rose’s show. Rather, he said, it is “supportive of orderly economic growth; there is no question at all in my mind” about it. The rule persists, he said, if in somewhat more complicated a form than its original state, but even as it is, said Volcker, “I think it is OK.”

“There's a lot of commotion about the lengths of the rule and the commentary and all the rest,” he continued. “A lot of lawyers have spent a lot of time trying to pick holes in this thing and, of course, the regulators respond by trying to close the holes that they pick in it and you end up with presumably a pretty cumbersome piece of paper.”

Rose clarified, “So if anybody argues that banks lobbied and had it diluted, in the words of the creator of the Volcker rule, they simply got it wrong.”

“They got it wrong in any broad sense,” Volcker replied, “and that is why there is so much unhappiness, I think. They say it is too complicated; 'We can't do it.'”

Laughing, Volcker pointed out that a much earlier—and simpler—rule simply forbade any such trade as that governed by the rule, and added that if banks thought the present Volcker rule too complicated, the earlier rule could simply be revived.

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