Federal Reserve Gives Yet another Gift to Big Banks
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The first came earlier this month when Congress repealed the “swaps push-out” rule, a restriction on trading derivatives not backed by the Federal Deposit Insurance Corp.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.
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)
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