Volcker on the Volcker Rule

By Protess, Ben | International Herald Tribune, May 11, 2012 | Go to article overview

Volcker on the Volcker Rule


Protess, Ben, International Herald Tribune


Paul A. Volcker, the former Federal Reserve chairman, told Congress that the regulation was a "solid step toward reining in" big, government-backed banks.

The Volcker Rule, loathed by many bankers, still has the support of an influential Wall Street critic: Paul A. Volcker.

Mr. Volcker, former chairman of the U.S. Federal Reserve, defended the regulatory crackdown that bears his name, telling Congress on Wednesday that the Volcker Rule was a "solid step toward reining in" banks that are considered too big to fail.

Mr. Volcker has championed efforts to bar banks from trading with their own money, a practice that is known as proprietary trading and is outlawed under the new policy. The Volcker Rule, a crucial component of the Dodd-Frank regulatory overhaul law, was rooted in his belief that banks should not place risky bets while enjoying government deposit insurance and other backing.

Mr. Volcker argued Wednesday that the rule would make a serious dent, not only in outsize risk-taking but in the likelihood of future Wall Street bailouts.

"Its influence goes far beyond the particular risks," he told the Senate Banking Committee, telling lawmakers that the rule also addressed "a cultural issue" on Wall Street.

Proprietary trading, he said, breeds "conflicts of interest" and "necessarily dangerous behavior" at big banks.

And for their effort, he noted, "traders get to be richly rewarded."

Condemning banks for trying to mimic hedge funds and other shadowy corners of Wall Street, Mr. Volcker challenged the wisdom behind proprietary trading.

"It is surely inappropriate that those activities be carried out by institutions benefiting from taxpayer support, current or potential," he said. "Proprietary trading is not a necessary ingredient of bank profits."

Alternately haranguing banks and playing down his own influence on the rule, which "somehow has my name attached to it," Mr. …

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