Regulators from the Federal Reserve and four other agencies were set to vote today on a final draft of the Volcker Rule, a provision of the 2010 Dodd-Frank financial reform law that is designed to prevent government-backed banks from making the type of risky bets that contributed to the 2008 economic collapse. But that vote may have to wait, because of the giant snow storm bearing down on the East Coast this morning. Thanks a lot, winter.
Officials from the Federal Deposit Insurance Corp, the Office of the Comptroller of the Currency, the SEC, and the Commodity Futures Trading Commission (CFTC), in addition to all bank regulators and members of the Federal Reserve, will participate in the vote. Unfortunately, according to Reuters, CFTC has cancelled their public vote, as most of Washington expects to be under several inches of snow in the next few hours.
It was unclear whether the CFTC would schedule another meeting, or whether it would vote behind closed doors on the rule, which would ban banks from gambling with their own money. It was also unclear whether two other agencies - the U.S. Federal Reserve and the Federal Deposit Insurance Corp - would hold their scheduled votes on Tuesday.
The Volcker Rule, proposed by former Federal Reserve Chairman Paul Volcker, was passed into law as part of Dodd-Frank, but has yet to be implemented. It seeks to block banks with federally insured deposits from engaging in proprietary trading (in short, trading their own money for profit), which is hard to distinguish from admissible practices like hedging and market-making trades. Proprietary trading benefits banks, but poses a threat to taxpayers when the trades go bad. According to the provision's supporters, such a rule would protect citizens against too-big-to-fail bailouts.
According to CNN, pro-Wall Street advocates have been vocal in their opposition to the rule:
Regulators have received over 18,000 comment letters on the subject, among the highest for any provision of Dodd-Frank. They have also held dozens of meetings with interested parties, the vast majority of which were affiliated with the financial industry, according to a recent paper from Duke University law professor Kimberly Krawiec.
The New York Times further reports that banks have hired leagues of lawyers to figure out how to comply — or avoid — new regulations set by the law:
Hundreds of lawyers will pore over the details of the final draft, searching for loopholes and outlining for banks how they can comply with the law while still taking risks. One big law firm is installing extra printers in its conference rooms to print out multiple copies of the rule.
Securities lawyer Bill Singer told the Times that banks' mindset with regards to the rule is, "How do we get around it?"
Sources say the Volcker Rule likely will not be implemented until July 2015, so lawyers can take a few months to review the details of the roughly 970-page-long preamble and ruling before making moves. Reuters reports that opponents could seize on alleged procedural defects, poor cost-benefit analyses, or contradictions to the larger Dodd-Frank law in making legal arguments against the rule. Resistance could also come from those seeking stronger bank regulations, who may push for a reinstatement of the Glass-Steagall Act which kept commercial banks separate from investment banks from 1933 to 1999.
Reuters reports that banks like Morgan Stanley, JPMorgan and Goldman Sachs — all of which have paid fines for their roles in the financial crisis — could see a drop of billions of dollars in revenue each year due to the Volcker Rule.