Email from Credo: Tell the Federal Reserve: No more delays. Implement the Volcker rule now.
As 2014 was drawing to a close, the Federal Reserve celebrated the holiday season with a massive gift for Wall Street banks. Just days before Christmas, the Federal Reserve announced a two-year delay of the Volcker rule.
Named after former Federal Reserve Chairman Paul Volcker, the "Volcker rule" would ban big banks from making risky bets for their own gain. A two-year delay would mean that the rule would not go into effect until 2017, letting banks profit from investments in hedge funds and reckless gambling for seven years after financial reform legislation became law, and nearly a decade after their fraud crashed the economy.
CREDO members fought hard for a strong Volcker rule in Congress and when the Fed was drafting the final regulation. We cannot led the Federal Reserve give Wall Street a free pass and put us all at risk of another meltdown.
The Volcker rule boils down to this: Banks should be banks, not hedge funds. Lending, savings, and legitimate banking services like “market-making” are ok. Speculative gambles and investments in complicated and risky derivatives are not – not when those banks are insured against losses by the U.S. government, and considered too-big-to-fail. But big banks hate this rule, because these bets for their own gain, called “proprietary trading,” make them a ton of money. In fact, according to Standard & Poor’s, the Volcker rule could cost the eight largest U.S. banks up to $10 billion in profits each year.
Wall Street giants tried to kill and water down the Volcker rule in Congress, when it was included in the Dodd-Frank package of financial reforms. Then there was intense pressure on the Federal Reserve to turn the rule into a swiss cheese of loopholes and exemptions when it finalized the actual regulation. Thanks in part to the outcry from tens of thousands of CREDO members, the Federal Reserve’s final regulation was stronger than expected. But that matters little if it never goes into effect, and the Fed has already delayed the rule by twelve months once before.
Wall Street also just won a big victory when a key element of Dodd-Frank was repealed in the government funding bill in early December. Now, the Federal Reserve has added another big win by announcing a second one-year delay in the Volcker Rule. In fact, it went further in a rare move – declaring that it plans to extend the deadline twelve months from now. It all adds up to a multi-year extension until 2017. It is no wonder that progressive champions from Elizabeth Warren to Alan Grayson and Jeff Merkley have blasted the change.
Wall Street banks claim that because the rule was only finalized in 2013, they need more than a year and a half to get out of speculative trades, especially for risky investments that are “illiquid,” or not traded very often. But as Paul Volcker himself said recently, “It is striking that the world’s leading investment bankers, noted for their cleverness and agility in advising clients on how to restructure companies and even industries, however complicated, apparently can’t manage the orderly reorganization of their own activities in more than five years.”
In most cases, big banks aren’t simply trying to get out of trades – they are trying to exit gambles while still turning a profit. That is no excuse for inaction that puts our entire economy at risk. Banks have had plenty of warning that this change was coming. This is simply another example of Federal Reserve officials coming to believe that the profits of Wall Street banks are more important than risk to the overall economy.
Wall Street is likely hoping that an extension until 2017 buys them time to help a Republican president and Congress to repeal the rule altogether. We can’t let that happen.
The Federal Reserve needs to do its job and implement the Volcker rule – now. Click below to sign the petition:
http://act.credoaction.com/sign/Volcker_Rule_fedreserve?t=6&akid=12589.7319880.E86htL
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