Tuesday 25th October 2016                 Change text size:

Disagreement among US regulators leads to Volcker rule confusion

Balancing The Account

Disagreements over the requirements of the Volcker rule have left banks confused about what they need to report and concerns about how effective the rule will be.

According to the Financial Times, people familiar with the matter said the five US regulators involved in the rule disagree on what is required of the banks. One of the main issues is what banks need to report and when. Whilst the agencies are working to resolve the issues it has led to questions around co-ordination and effectiveness.

July this year, banks will have to report information on risk and position limits monthly. The ambiguity in the rule means that different regulators, banks and organisations have interpreted it differently, leading to confusion.

The Volcker rule is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which aims to restrict US banks from making some speculative investments for their own benefit. All five of the US regulators approved the rule and backers have argued speculative trading played a role in the 2008 financial crisis.

Opposition to the rule called for lighter regulation and the American Bankers Association (ABA) only this week dropped a lawsuit challenging part of it. The ABA objected to the rule’s ban on certain types of trading but regulators have since tweaked the rule to allow banks to hold a narrow class of debt investments that would have originally been banned.

ABA president and CEO Frank Keating commented, “We have engaged in careful discussions with those banks whose legitimate business activities were not subject to relief under the interim final rule. The harm to their past and ongoing business is significant and unnecessary under the Volcker rule as enacted.”

Andre Spicer of Cass Business School previously described the rule as a “vital step towards addressing structural tensions which caused some of the worst behaviours leading up the financial crisis”.

Further reading:

‘Vital step’ in ending irresponsible banking as Volcker rule is approved by US regulators

Financial regulation reforms ‘inadequate’ to prevent another crash, says ex-FSA chair

Banking standards body must be run by non-bankers, says review chief

‘Shocking and widespread malpractice’ should land bankers in jail, says commission

One responsible banking system to rule them all

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