Rebuttal: The True Volcker Rule Debate
CNBC’s Steve Liesman posted a commentary this afternoon that questions JPMorgan Chase CEO Jaime Dimon’s responses about the Volcker Rule. While he asks the banking chief for his answers, he fails to mention what we in the industry have been saying for months. Here’s what we have said:
The statutory Volcker Rule in the Dodd-Frank Act clearly states that banks can not engage in proprietary trading. The statute also lays out permitted activities like market making and hedging (including portfolio or aggregate hedging). Regulatory agencies are tasked with and have tried to implement the Volcker Rule. This has proven to be quite difficult. The initial attempt to describe a regulatory approach to the Volcker Rule was published by the FSOC in January 2011. It provided a fair road map to implementation.
In October, the regulatory agencies published a proposal from which Liesman quoted. This has been roundly criticized by market participants, foreign governments, central banks and academics. Much of the criticism has centered on the overly prescriptive approach to permitted activities— market making and hedging—that would curtail essential market functions specifically recognized by Congress. The industry does not believe the approach proposed in October will work.
The industry has suggested that in order to achieve the goals set out in the Volcker rule –prohibit proprietary trading while permitting certain beneficial activities – a less prescriptive approach should be adopted. We have suggested that firms develop specific policies and procedures that will be reviewed and approved by regulators and supervisors to ensure that activities are permitted.
Qualitative and quantitative factors would be incorporated into compliance regimes and would provide red flags for activities that require further scrutiny by internal senior management and by regulators. If the Volcker Rule is implemented as proposed by the industry, it is likely that the activities discussed at Wednesday’s Banking Committee hearing would have been scrutinized more closely.
—Tim Ryan is president and CEO of the Securities Industry and Financial Markets Association.