Washington politics seems like it may be leaving Paul Volcker, White House economics advisor, a little less upbeat. A couple weeks ago, he was “more optimistic” than he had been that a financial reform bill would pass this year. Today, at a talk to the Levy Economics Institute he said only that he was hopeful that useful structural reform will pass.
Mr Volcker criticised those in the financial community who “bitterly fighting” credit default swap regulation. They were, he said, “pushing back against what seems to be reasonable protection against the next crisis and its effects,” saying there should have been some “better” and “more expeditious way” of dealing with the problem of AIG’s CDS-fueled collapse.
The unnecessarily acrimonious CDS fight isn’t Washington’s only problem. Mr Volcker also lashed out at the politics that – 15 months after inauguration and in the midst of an economic crisis – have left the Treasury without permanent replacements for the two top finance posts: under secretary for domestic finance and under secretary for international affairs. “There is something the matter in Washington,” said Mr Volcker. Read more
The Senate banking committee briefly broke into rumblings about 20-somethings with clever ideas being able to subvert the intent of Congressional laws on complicated banking matters.
It’s no reason not to pass legislation to ban proprietary trading, Paul Volcker said. “Yes, banks have 26-year-olds with a whole lot of mathematical training and all the rest, but the supervisors need to hire some 28-year-olds.”
Paul Volcker, in both his written testimony and during the question and answer period, said: “Bankers know what proprietary trading is, don’t let them tell you otherwise.”
Mr Volcker was also questioned on whether the US could learn anything from Canada, which had been able to avoid the worst of the housing crisis, a topic explored by the FT last week. Read more
In a sign of just how powerful the Federal Reserve is, Paul Volcker and Neal S. Wolin couldn’t give a definitive answer on whether the Fed could now prevent proprietary trading without Congressional action.
Mr Volcker said that the Fed could tell banks they were “conducting a particular activity in a particularly risky way” but he wasn’t sure they could “say they can’t do proprietary trading”. Mr Wolin said that in any case, it shouldn’t be left up to the discretion of the regulator. Read more
How hard will Chris Dodd, who’s on his way out of the Senate, push for the Shelby rule? It’s not clear. Mr Dodd, like ranking member Richard Shelby, expressed frustration at the end of the hearing that the ‘Volcker’ rules hadn’t been proposed earlier. He wants to pass a bi-partisan bill, he said, and some of the last minute changes made getting Republican support more difficult.
I don’t want to go to the floor of the United States Senate begging for a sixtieth vote. I’m not going to do that.
ORIGINAL POST (from 20:31):
Chris Dodd, chairman of the Senate banking committee, says he ‘strongly’ supports the ‘Volcker’ rules, which would prohibit commercial banks from engaging in proprietary trading.
But (shock of shocks) there was no initial bi-partisan consensus. Richard Shelby, the Republican ranking member, said he’d consider the proposal, but he was “quite disturbed” that the administration had waited so long to introduce it. Read more
Questioned on whether the “Volcker rule” would have, by itself, prevented the financial crisis, Paul Volcker said that it would not have, but its goal is to prevent future crises.
“I tell you sure as I am sitting here that if banking institutions are given free rein and allowed to speculate however they want to, I don’t know if I’ll see the crisis, but my soul is going to come back and haunt you.”
The European Central Bank’s response to Barack Obama’s bank reform proposals is taking shape. Speaking in Milan, Lorenzo Bini Smaghi, an ECB executive board member, confirmed Frankfurt’s view that the proposed “Volcker rule” – splitting traditional banking activities from high-risk proprietary trading operations – was “heading in the right direction”. It also represented “a first step to ensuring the financial system can effectively support the real economy and is not weakened by the most volatile market fluctuations”.
But Mr Bini Smaghi worried, first, that such a step might simply drive the higher risk trading operations beyond the control of regulators. Read more
Jobs data looks healthy in Brazil and the square mile, but less rosy for manufacturing workers and journalists, although wage data may be good for those employed, whatever the sector. Commodities are ever more popular and gold could surge if China bans exports Read more