Volcker Stands Up For Namesake Rule
By Scott Patterson | The Wall Street Journal

Paul Volcker is about to fire back at critics of the proposed rule that bears his name.

The former Federal Reserve chairman is expected to file a comment letter on the so-called Volcker rule before a Monday deadline, contending the U.S. financial system will be safer and healthier with a ban on proprietary trading by banks, according to people familiar with the situation.

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The Volcker rule is one of the most controversial parts of the Dodd-Frank financial-overhaul law. Proposed rules were announced in October by the Federal Reserve, Federal Deposit Insurance Corp., Securities and Exchange Commission and Office of the Comptroller of the Currency. The Commodity Futures Trading Commission proposed identical rules in January.

The rule goes into effect in July, and proprietary-trading operations banned under the rule must be divested by 2014, according to law firm Davis Polk & Wardwell LLP. Banks will get an additional three years to comply under certain circumstances. Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley and other firms have closed proprietary-trading desks or seen traders leave in anticipation of the Volcker rule.

In a sign of the fierce opposition, several major financial firms are expected to submit multiple comment letters by Monday's deadline expressing concerns with the Volcker rule. The Securities Industry and Financial Markets Association, a Wall Street trade group, plans to file five letters, according to Rob Toomey, the group's general counsel. The proposal for the rule included hundreds of questions from regulators.

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http://finance.yahoo.com/news/volcker-stands-namesake-rule-050100332.html

Occupy the SEC

The Dodd-Frank Act, which passed in 2010, contained a Section (619) that is known as “The Volcker Rule”. The Volcker Rule puts limits on proprietary trading by banks and non-bank financial companies.

The SEC and the banking regulators are now required to actually implement Sections 619 and 620 through regulations.

Whenever a federal agency proposes a substantive new regulation, by law it is required to seek public comment first. Normally the only parties that respond to agency comment requests are the companies that are affected by the regulations, and their attorneys (i.e. lawyers at the investment banks, in this case). As you might guess, their comments are always critical of regulation.

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We also encourage concerned citizens to read through Volcker and the related documents listed below, and to form your own comment letter

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http://www.occupythesec.org/

COMMENTARY ON THE RESTRICTIONS ON PROPRIETARY TRADING BY INSURED DEPOSITARY INSTITUTIONS

By Paul A. Volcker

Full discussion by the public, and particularly by directly affected institutions, on the proposed regulations implementing the Dodd-Frank Act, as with all proposed rules, is necessary and important. It is also true that the commentary and debate may generate uncertainty and confusion along with useful and needed improvements. That has been apparent in responses to the proposed regulation implementing certain restrictions on proprietary trading by commercial banking organizations – the so-called “Volcker Rule”.

In sorting out the problems – the real from the imaginary, the truly important from the incidental – the basic logic and approach of the law deserves re-emphasis.

The basic public policy set out by the Dodd-Frank legislation is clear: the continuing explicit and implicit support by the Federal government of commercial banking organizations can be justified only to the extent those institutions provide essential financial services. A stable and efficient payments mechanism, a safe depository for liquid assets, and the provision of credit to individuals, governments and business (particularly small and medium-sized businesses) clearly fall within that range of necessary services. Proprietary trading of financial instruments – essentially speculative in nature - engaged in primarily for the benefit of limited groups of highly paid employees and of stockholders does not justify the taxpayer subsidy implicit in routine access to Federal Reserve credit, deposit insurance or emergency support.

In fact, the comfort for creditors and others inherent in the ability of institutions engaged in proprietary trading to resort to the Federal “safety net” can only tend to encourage greater leverage and risk-taking. Commercial bank proprietary trading is thus at odds with the basic objectives of financial reforms: to reduce excessive risk, to reinforce prudential supervision, and to assure the continuity of essential services.

The questions and objections raised in comments on the proposed rules appear to fall into four broad categories:

1. Proprietary trading by commercial banks is not an important risk factor;
   
   
2. Needed liquidity in trading markets will be imperiled;
   
   
3. The competitive position of U.S. based commercial banking institutions will be adversely affected;
   
   
4. The proposed regulation is simply too complicated and costly.

My short answer to each of these objections is: “not so”. I will comment on each of them in turn.

http://online.wsj.com/public/resources/documents/Volcker_Rule_Essay_2-13-12.pdf