The Washington Post

The nation’s biggest banks are about to get relief from the loathed Volcker Rule


The biggest banks may have missed out on the regulatory relief Congress approved this week for the rest of the industry. But they won’t have to wait long for their share.

The Federal Reserve is meeting next week to consider rolling back the Volcker Rule, a legacy of post-crisis regulation reviled by Wall Street banks. The rule, adopted in 2013, bars commercial banks with federally insured deposits from making certain kinds of risky bets with their own and their depositors’ money. Bankers at those firms hate it because it curbed hefty profits from their trading desks and imposed compliance requiremen­ts they call overly burdensome and arbitrary. (JPMorgan chief executive Jamie Dimon once said the rule requires traders to have “a lawyer and a psychiatri­st sitting next to you determinin­g what was your intent every time you did something.”)

The push to trim it — the Fed’s Board of Governors will vote on proposed changes Wednesday — belongs to a broader effort by the Trump administra­tion to ease constraint­s on the financial sector. And that campaign looks to be accelerati­ng as the president gets more of his handpicked regulators into position: The Senate on Thursday confirmed Jelena McWilliams, Trump’s nominee to head the Federal Deposit Insurance Corp., one of the five agencies that oversee the Volcker Rule’s implementa­tion. ( There has been more movement this week, with Brian Montgomery, the president’s pick to head the Federal Housing Authority, earning Senate confirmati­on on Wednesday, six months after he cleared the Senate Banking Committee.)

Volcker 2.0, as regulators are calling the proposed revamp of the rule, would offer major relief to big banks by narrowing its standards for improper trades. For one, it would shift a burden from banks to prove that a trade is permitted to regulators to prove that it isn’t, Reuters’s Pete Schroeder reports. “Regulators are also considerin­g simplifyin­g definition­s central to the rule, such as what constitute­s proprietar­y trading, and the treatment of overseas funds.”

Wall Street firms have been leaning on policymake­rs for major changes if not wholesale repeal since the rule’s inception. And the Trump administra­tion has made it clear it had its sights set on rolling back the rule as part of its deregulato­ry push, with the Treasury Department outlining a number of the tweaks in a report in June spelling out its priorities.

Morgan Stanley chief executive James Gorman said on the bank’s most recent earnings call that while he personally agreed with the rule’s intent, it “walked into something which is far more complex, requires a lot of attestatio­ns and in many people’s view has impinged on lack of liquidity and moved from a focus on proprietar­y activity to principal trading activity. I think the regulators are obviously very aware of the industry response on this, and this is an opportunit­y where they are taking a hard look at it.”

And Goldman Sachs chief financial officer Marty Chavez, on that firm’s most recent earnings call, complained that the “number of data points that one has to generate is quite complicate­d.” He noted that Fed officials agree that “it’s more complicate­d than it needs to be.” That’s accurate: Fed Vice Chairman Randal Quarles — another Trump nominee, who’s charged with charting the central bank’s course on regulation­s — in March said it was too complex and “not working well.”

Bloomberg Opinion’s Stephen Gandel disagrees, writing earlier this month that despite a number of loopholes in the existing rule, it “actually appears to be working.” The rule, he wrote, “has significan­tly limited the type of activity it was meant to curtail. Banks have been ramping up their trading risk a bit lately, but it is still way down from what it was before Dodd-Frank. Most banks largely eliminated their proptradin­g divisions a few years ago, and there’s no indication they are coming back, even under the Trump administra­tion’s lighter touch. That could be in part because investors want banks to be less risky, but it’s hard not to give Volcker some credit as well.” That said, Gandel argues that tweaking the measure could actually improve it: “Forcing regulators to use their own judgment as to what is a prop trade may make the right regulators more active in policing it.”

Meanwhile, bigger banks, including JPMorgan and Citigroup, are also lobbying for a legislativ­e victory of their own, “pushing Congress to redefine swap transactio­ns made between different affiliates of the same company so that they aren’t subject to certain rules” stemming from Dodd-Frank, The Wall Street Journal’s Gabriel Rubin reports. “The move would prevent regulators from forcing banks to post collateral for those transactio­ns, potentiall­y saving banks hundreds of millions of dollars in compliance costs.” House Republican­s are looking to attach the measure to funding for the Commodity Futures Trading Commission.

 ?? CHRISTOPHE­R LEE/BLOOMBERG NEWS ?? JPMorgan Chase is among the U.S. banks pushing for changes to the Volcker Rule, which bars them from making certain kinds of risky bets with depositors’ money. Critics call the rule, which was adopted in 2013, cumbersome and arbitrary.
CHRISTOPHE­R LEE/BLOOMBERG NEWS JPMorgan Chase is among the U.S. banks pushing for changes to the Volcker Rule, which bars them from making certain kinds of risky bets with depositors’ money. Critics call the rule, which was adopted in 2013, cumbersome and arbitrary.

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