In fact, the Volcker rule is already federal law, passed as part of the massive financial sector overall bill known as the Dodd-Frank Act, signed in 2010. But since that time, five separate regulatory agencies, including those that focus on the markets and others on the banks, have been working to come up with a rule that will satisfy all parties.
They’ve already blown by multiple deadlines, and an early proposal was criticized by many outside of the industry as being both too weak and too complex. Yet in recent weeks, leaks from the process have suggested that a stronger version of the Volcker rule could now be in the offing, and both President Obama and Treasury Secretary Jacob Lew have stepped up lobbying efforts to push for a final rule before the end of the year.
“There are two major reasons for the lateness of this rule. First, of course, the financial sector hates it, so resistance has been fierce. The financial industry has tremendous resources and leverage, and has been trying to weaken, slow and do anything else it can to limit this rule,” Wallace Turbeville, a former investment banker and now a senior fellow with Demos, a public policy think tank, told Mint.
“Second, the rule has to be passed by five agencies at once. I’m not sure whether that has ever happened before, particularly on something this big and controversial.” [...]
“The Volcker rule is really a critical part of the whole reform package, but it’s different from the rest of the Dodd-Frank reforms in that it addresses banks that are insured by the federal government and other institutions that are considered ‘systemically important,’ and prohibits them from trading on their own credit in ways that are for short-term profit,” Turbeville said.
“That’s categorically different from the rest of Dodd-Frank, in that it is limiting activities rather than measuring risk, setting aside money or regulating how the markets work.” [...]
Worryingly, however, neither success on getting the Volcker rule in place, nor the slow but steady progress being made on the other 200-some regulatory rules associated with Dodd-Frank, mean that the U.S. financial system is necessarily stronger than it was before the financial crisis, or that it would be more resilient in the face of another such crisis.
Indeed, long-time observers such as Turbeville point out that the United States’ regulatory regime is only now starting to catch up with where the country stood a half-decade ago.
“The fact is, conditions are worse than they were in 2007-08. We have far more concentration in the market today, in part because several firms were lost or absorbed,” he said.
“By and large, Dodd-Frank was responsive to the [international discussions] that occurred in 2009, which broadly talked about principles. Today we know much more than we knew in 2009 or 2010, but whether we can translate that knowledge base under the normal political process or whether that will require another crisis is an open question.”
