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Big Banks

How to Kill Volcker Rule? Don’t Enforce It

November 28, 2016

Big banks spent years railing against the so-called Volcker rule, which bars them from making wagers with their own money. Now, with the imminent arrival of the Trump administration, some banks and lawyers are eyeing a new way to defang the rule: Simply stop enforcing it.


The Volcker Rule, one of the most controversial pieces of the 2010 Dodd-Frank financial-overhaul law, was intended to rein in reckless risk-taking by big banks. But critics complain that it’s unduly burdensome to comply with and deprives them of a lucrative money-making opportunity.


Getting rid of the Volcker rule would require an act of Congress - but repealing the rule could be difficult, and would likely encounter a roadblock in the Senate where the support of some Democrats would be necessary to ensure passage.


But neutering the Volcker rule, which took effect in July 2015, would be comparatively easy. While the rule is enshrined in the Dodd-Frank law, the provision instructed regulators to write the rule’s fine print. And enforcement remains subject to considerable interpretation.


For example, financial firms can trade in stocks and bonds so long as their holdings don’t exceed the “reasonably expected near-term demand” of their customers. But just how so-called RENT-D is calculated is subjective; there isn’t one single formula.


That subjectivity has some industry officials optimistic that regulators appointed by the new Trump administration will change their agencies’ interpretations of the rule or tell the officials charged with enforcing it to hold back.