Chilton: We Need the Volcker Rule Now
Timely implementation of a strong Volcker Ruleis a necessary reform to our financial regulatory system. The Federal Reserve, Securities and Exchange Commission, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation and the Commodity Futures Trading Commission all have a part in this and we need to ensure that the rule is done soon.
It should happen quickly, both to let banks know how they can trade in the future, and to ensure consumers are better protected. We need to make this a very strong rule to avoid a super-sized loophole that would gut the intent of the law, which is, to protect against systemic risk, increase market transparency, and ensure investor protection.
Importantly, we need to include in the rule a clear, concise and common-sense definition of what hedging is, that would permit legitimate hedging of risk but would ensure that banks may not engage in speculative trading for their own accounts—the kind of trading that got Citibank and Goldman Sachs in trouble with regulators recently and the kind of trading that was part and parcel to the economic meltdown of 2008. (Read More:JPM Actions Would Not Be Permitted Under Volcker: Sen. Levin. - )
If there is a pattern of profits from their hedging, greater than the losses on underlying risks, it raises a very real—and actionable—concern, that a hedging exemption may have been improperly used. In such cases of willful evasion of the rule, the government needs to come down hard and fast to the fullest extent of the law. (Read More: Which Banks Would the Volcker Rule Affect?)
The Volcker Rule is the law of the land and it’s time we get it implemented.
Commissioner Bart Chilton of the U.S. Commodity Futures Trading Commission is the author of "Ponzimonium: How Scam Artists Are Ripping Off America."