Tuesday, October 9, 2012

Full Speed Ahead on the Volcker Rules Says Senior Treasury Official


Author: David Schwartz J.D. CPA David Schwartz J.D. CPA

[W]e will not back away from our fundamental responsibility of making sure our financial system is safe. But we need smart regulation that can make future financial shocks less likely and less damaging – and without unnecessary compliance costs.  We want to make sure the rules are calibrated so they allow investors to take appropriate risks and do not restrict businesses from obtaining the credit they need to hire, invest and grow.


Despite efforts to delay or prevent them, the Volker Rules are on their way says Treasury Under Secretary for Domestic Finance Mary Miller in remarks to the American Banker Regulatory Symposium.  Miller says the five regulators working on the rules have read carefully the 18,000 comment letters on their initial proposal, and expect to issue final Volker Rules perhaps by year end.

Miller said the Volker Rules are at their very core intended to prevent banks from making speculative bets that put customer deposits at risk and potentially expose taxpayers to losses.  The drafters are bearing in mind, she says, that it is hard to write a very detailed rule that would address every concern. But at the same time, it is even harder to write a simple rule that is conceptually clear to handle the nuances of a complex financial system.  The difficulties lie in the details, and opponents of Dodd-Frank reforms and the Volker Rules have used the difficulty of the task of writing smart regulation as a reason to abandon the effort.  Ms. Miller says that despite the efforts of those who oppose the Volker Rules, they will move ahead because the cost of inaction is yet another catastrophic financial meltdown.  

 


Despite all of this progress and collaboration, opponents of reform want to repeal Dodd-Frank or significantly water down the rules. They apparently have forgotten what happened when huge amounts of risk built up inside our financial system. Or perhaps, they must have little memory of the events that unfolded just four short years ago – when major financial institutions were falling like dominos, when panic gripped the markets, when many rightfully feared that we were staring into the abyss of a second Great Depression.

 


This line of thinking is dangerous. We cannot afford another financial crisis. The price of reform is small compared to the price of another September 2008. The lost homes. The lost wealth. The lost businesses. The lost jobs. I fear that the further we move away from the crisis, the easier it is to forget its tremendous costs.

Ms. Miller is yet another high level official who has stepped up recently to reaffirm US regulators' commitment to Dodd-Frank reforms, and the inevitability of the Volker Rules. With Congress stepping away from the Capitol for the election season, most of the action in this area will likely be from the regulators themselves as they work to craft the smart regulation they envision.

Print