Federal Reserve Gives Yet another Gift to Big Banks

Monday, December 22, 2014
Federal Reserve General Counsel Scott Alvarez (photo: Carolyn Kaster, AP)

If there are 12 days of Christmas, America’s big banks are on Day 3 because they’ve already gotten two big presents this year.


The first came earlier this month when Congress repealed the “swaps push-out” rule, a restriction on trading derivatives not backed by the Federal Deposit Insurance Corp. (FDIC).


The second came Thursday when the Federal Reserve granted financial institutions extra time to divest themselves of private equity and hedge fund investment they’d been required to sell as part of the Volcker Rule, which prohibits banks from investing their own capital. The banks claimed that selling too quickly would unfairly cause them to lose money on the securities, and they now have until July 2017 to get rid of them.


“It is striking, that the world’s leading investment bankers, noted for their cleverness and agility in advising clients on how to restructure companies and even industries however complicated, apparently can’t manage the orderly reorganization of their own activities in more than five years,” Paul Volcker said in a statement. “Or, do I understand that lobbying is eternal, and by 2017 or beyond, the expectation can be fostered that the law itself can be changed?”


The Volcker Rule was part of the Dodd-Frank bank reform package adopted in 2010 and had been proposed by Volcker, a former Fed chair. Originally, banks were supposed to unload the securities by July of this year. They’d already gotten one reprieve, until 2015, and now compliance has been pushed back another two years.


“The Street has had years of notice to unwind these investments, and it appears that their self-serving complaints have been accepted fairly uncritically without a real analysis for the basis of the claim,” Dennis Kelleher, president and CEO of Better Markets, a financial reform advocacy group, told The Huffington Post. “If you can’t get out of a trade in seven years, it’s probably not the kind of trade you should be doing.”


Banks have been trying to chip away at Dodd-Frank since its passage. Now, in the space of one month, they’ve eliminated one significant part of the bill’s protections for the U.S. economy and postponed another.


“Swaps pushout was a club,” Marcus Stanley, policy director for Americans for Financial Reform, said, according to The Huffington Post. “This is a stiletto.”


The postponement is seen as the work of Fed general counsel Scott Alvarez, a holdover from Alan Greenspan’s tenure as Fed chair who has been trying to water down Dodd-Frank since it was passed. Alvarez suggested at a November conference that the postponement be granted.

Goldman Sachs and Morgan Stanley, both of which played prominent roles in the financial meltdown that came at the end of the George W. Bush administration, among others, stand to benefit from the postponement.

-Steve Straehley


To Learn More:

Fed Grants Volcker Reprieve in Banks’ Second Big Win This Month (by Jesse Hamilton and Cheyenne Hopkins, Bloomberg)

Fed Delays Volcker Rule, Giving Wall Street Another Holiday Gift (by Zach Carter, Huffington Post)

4 Biggest Banks Win Big in Spending Bill (by Noel Brinkerhoff, AllGov)


Patrick Sullivan 9 years ago
The authority to issue money is the ORGANIZING PRINCIPLE of society. Labor should be the issuer of our money. STRIKE THEM OUT labor. Take the authority to issue our money into your hands
Clem Kadidlehopper 9 years ago
The money powers prey upon the nation in times of peace and conspire against it in times of adversity. It is more despotic than a monarchy, more insolent than autocracy, and more selfish than bureaucracy. It denounces as public enemies, all who question its methods or throw light upon its crimes… As a result of the war, corporations have been enthroned and an era of corruption in high places will follow, and the money powers of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed. – Abraham Lincoln "The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered." — Thomas Jefferson, Founding Father, Third President of the United States, and the principal author of the US Declaration of Independence
Bobbie Malicki 9 years ago
Morris, Excellent advice; you nailed it! But when do politicians/Fed live in the 'real' world?
robertmorrisV 9 years ago
The Federal Reserve has been performing badly because it has ignored Lindauer's modern macroeconomic theories and policies for the real world and, in its ignorance of effective policies for main street, instead catered to the special needs of wall street as presented to it by the bank lobbyists citing old ideas and theories. Shame of the Fed's governors and shame on the Presidents who appointed them. Lindauer is right - we do not need more regulations or federal spending to quickly get out of our economic malaise without inflation. We need the Fed to properly flow money and credit into the real economy instead of to a handful of hard lobbying big banks.

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