Two members of the House Financial Services Committee condemned recent actions to roll back safeguards put in place after the Great Recession to stop risky trading and investment practices by Wall Street banks.
Congresswoman Maxine Waters, Chairwoman of the House Financial Services Committee, and Senator Sherrod Brown, ranking member of the Senate Banking, Housing, and Urban Affairs Committee, sent a letter to the heads of the Federal Reserve, the Office of the Comptroller of the Currency (COC), Securities and Exchange Commission (SEC), Federal Deposit Insurance Corporation (FDIC), and the Commodity Futures Trading Commission (CFTC) voicing their displeasure in the rollbacks, and requested more information about the 2019 changes in the Volcker Rule.
“In short, the 2019 rule is simply a giveaway to Wall Street banks that puts taxpayer-backed banks at risk. We believe the changes to the Volcker Rule and other regulatory changes proposed and implemented by your agencies threaten the stability of the financial system,” the lawmakers wrote.
The letter continued by saying amendments to Section 619—the Volcker Rule of the Dodd-Frank Wall Street Reform and Consumer Protection Act—is a cornerstone of the Wall Street Reform Act that Congress passed in the wake of the financial crisis.
“These latest amendments (2019 rule) to the Volcker Rule open the door to the very risky, speculative activities that Congress sought to prohibit,” the lawmakers stated.
Additionally, numerous aspects of the 2019 ruling are “problematic,” and that all amendments to the original Volcker Rule finalized in December 2013 would allow more proprietary trading by banks or result in less information provided to agencies.
“Among the rollbacks in the 2019 rule that alarm us are the: narrowing the definition of ‘trading account,’ including by weakening the short-term intent prong; eliminating metrics reporting; removing activity restrictions on non-U.S. banks; and expanding permitted activity related to covered funds,” the letter says.
The Federal financial regulatory agencies announced earlier in October revisions to simplify the Volcker Rule.”
Under the revised rule, firms that do not have significant trading activities will have simplified and streamlined compliance requirements, while firms with significant trading activity will have more stringent compliance requirements. Community banks generally are exempt from the Volcker rule by statute. The revisions continue to prohibit proprietary trading, while providing greater clarity and certainty for activities allowed under the law. With the changes, the agencies expect that the universe of trades that are considered prohibited proprietary trading will remain generally the same as under the agencies' 2013 rule.
“The Federal Reserve, FDIC, OCC, SEC and CFTC have all appropriately simplified the Volcker Rule to reduce compliance burdens and provide certainty for markets,” said Mike Crapo, Chairman of the U.S. Senate Committee on Banking, Housing and Urban Affairs in a statement. “I continue to encourage the agencies to consider further revisions to the ‘covered funds’ definition’s overly-broad application to venture capital, other long-term investments and loan creation, which are necessary to improve market liquidity and preserve access to diverse sources of capital for businesses.”