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Banks’ Volcker battle extended

By Claes Bell ·
Friday, December 23, 2011
Posted: 1 pm ET

Banks will have an extra month to try and influence how regulators will implement the Volcker rule. From Cheyenne Hopkins at Bloomberg:

U.S. regulators will extend the comment period for the so-called Volcker rule, giving lawmakers and banks more time to seek changes in the proposed ban on proprietary trading, said a government official familiar with the process.

The comment deadline, initially set for Jan. 13, will be pushed back 30 days to Feb. 13, said the official, who declined to be identified because the decision isn’t public. The change may extend the comment period until a vote by the Commodity Futures Trading Commission, the last of five agencies required to approve the Dodd-Frank Act measure. CFTC Chairman Gary Gensler said on Dec. 20 that the vote may come next month.

Debate rages over the Volcker rule

Debate rages over the Volcker rule

Named for former Fed chairman Paul Volcker, the rule is intended to keep banks from using their own funds to buy and sell stocks, bonds, derivatives and other investments, known as proprietary trading. The idea is to keep banks, which have received a lot of money from the Federal Reserve over the last few years to keep them afloat, from using that money to gamble on the markets.

Banks hate the rule because it cuts off a major source of revenue for them. They also complain that the more than 300 pages of regulations putting the rule into practice are unnecessarily complex and will saddle them with a costly regulatory burden.

Opponents of the current version of the Volcker Rule have found an unlikely ally in former FDIC Chairman Sheila Bair, who wrote a column critical of the rule in Fortune magazine this month, which offered a potentially simpler solution:

Regulators should scrap the mind-boggling complexity in the proposed rule and focus instead on the underlying economics of a transaction. If the transaction makes money the old-fashioned way -- the customer paying the institution for a service through interest, fees and commissions -- then it passes the test. If profitability (or loss) is driven by the direction of markets, then it fails.

Regardless of how Volcker is implemented, it will likely put more pressure on bank profits, which are already showing the effects of the Durbin Amendment restricting swipe fees and restrictions on overdraft fees. Banks will be looking to make that money up somewhere and may turn to higher pricing and less favorable terms for customers, including checking account holders.

What do you think? Is simpler better for bank rules? Will Volcker hit bank customers' wallets?

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December 23, 2011 at 3:20 pm

It appears that the governments wants consumers to pay more fees for banking services. Why not just outlaw free checking?