WASHINGTON — The Volcker rule was designed to prevent another financial crisis similar to 2009, but critics say it will affect average bankers across the country instead of targeting Wall Street financial institutions.
The House Financial Services Committee examined the Volcker rule Wednesday in an effort to weigh its impact on job creators. Part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the rule was designed to curtail speculative and risky behavior by preventing U.S. bank holding companies from engaging in “proprietary trading” and from sponsoring hedge funds and private equity funds.
Republican members of the committee say that the rule, named after former Federal Reserve chairman Paul Volcker, has good intentions but creates far too much collateral damage for the average American.
“Today’s exhibit: the 932-page complex, confounding, confusing and convoluted Volcker Rule,” said Chairman Rep. Jeb Hensarling, R-Texas. “The Volcker Rule, I believe, remains a solution in search of a problem.”
Despite opposition, the rule is already set in law and will become effective on April 1. Wednesday’s discussion focused on how to best enforce the rule and whether it would be effective once implemented.
Many Democrats support it, including Rep. Maxine Waters, D-Calif., who said a “properly enforced” Volcker rule would protect American citizens from risky bank behavior.
Mark P. Wetjan, acting chairman of the Commodity Futures Trading Commission, said it has made traders more responsible.
“Due to Dodd-Frank and the efforts of my colleagues and staff at the CFTC, today there is both pre-trade and post-trade transparency in the swaps market where it did not exist before,” Wetjan said.
Wetjan was one of five witnesses at the hearing, representing the agencies that crafted the rule. All testified in its defense, including Mary Jo White, chairwoman of the Securities and Exchange Commission. White said the rule “takes a measured but robust approach” to regulate trade.
“Such collaboration should carry forward not just in implementing the rule, but also in coordinating the compliance and enforcement of the rule,” she said.
Though the rule will be effective in two months, it allows for a 15-month non-compliance period, in addition to several exemptions for activities such as trading in government obligations.
The Volcker rule troubles many Republicans, including Rep. Shelley Capito, R-W. Va. Capito said she was “deeply concerned” about how the five agencies would make executive decisions regarding implementation because there is no designated leader in the bureaucracy.
“I’m sitting here listening and I must have heard at least 40 times, ‘inter-agency group,’” Capito said. “Who’s in charge? I have yet to hear, really, who’s in charge.”
Other concerns were raised on the lack of research on the rule. Rep. Scott Garret, R-N. J., said the rule should not have been passed without a cost-benefit analysis. Chairman Hensarling agreed, saying that the effects of the rule remain ambiguous due to a lack of research.
“Based on the evidence, it appears the costs outweigh the benefits,” he said. “But the regulators who promulgated the rule don’t know for certain because none of the agencies conducted a cost-benefit economic analysis.”