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New Rules Proposed for Big Banks. The Battle Is On.

Written by Gary North on February 14, 2012

The so-called Volcker Rule, which prohibits banks from using their capital to speculate in commodities and stock markets, is under attack by — who else — the largest Wall Street banks. Liberals in Congress want it passed. The big banks don’t.

The banking system has resisted making loans at all. Excess reserves held at the Federal Reserve are in the $1.6 trillion range. The result has been slow economic recovery but also very low price inflation.

The Volcker rule would force the big banks to start making their money by making conventional loans to businesses. But there is not much profit in this when compared to speculative investing, or so the biggest banks think. So, they resist government interference with their practices.

We read in the New York Times:

Regulators in charge of writing the Volcker Rule, which would ban banks from trading with their own money, were inundated with complaints and suggestions on Monday, the deadline to comment on a draft proposal. More than 200 letters were expected to be filed by the midnight deadline on the rule, which regulators outlined in October.

Commenters included the rule’s namesake, Paul A. Volcker, the former Federal Reserve chairman, who submitted a strongly worded defense of the rule’s intent in a letter on Monday. Others, like consumer advocates and lawmakers, criticized the draft rule for not being tough enough.

The real problem is not the banks. The problem is with the Federal Reserve and the Congress, which have adopted “too big to fail.” They always bail out the major commercial banks. This lets the bankers take big risks with their money. They pocket the wins, but come running for bailouts whenewver theor high-risk investments turn sour.
The Volcker Rule is just an attempt to regulate the system at the edges. It is nothing when compared to the implicit bailouts that are always offered to big banks that get in trouble.
The business lobby of course wants to block the imposition of the new rule.

“This will make the overall economy less stable and less conducive to growth,” David Hirschmann, head of the Center for Capital Markets Competitiveness at the Chamber of Commerce, said in a letter. . . .

Wall Street firms, lawyers and trade groups churned out many Volcker Rule appeals. The Securities Industry and Financial Markets Association, or Sifma, hired the law firm Davis Polk to write multiple pitches to regulators. A hodgepodge of Wall Street trade groups led by Sifma alone filed five comment letters on Monday, including one document that spanned 173 pages. A regulatory comment letter normally runs 10 to 20 pages. During the writing period, most big banks formed internal Volcker Rule “task forces,” often led by risk officers and lawyers, to coordinate the effort across trading desks and divisions, people briefed on the efforts said.

This tells me that the practice of using bank capital to invest in these markets is where the profits are. The banks don’t want this profit source removed.

Wall Street’s biggest banks even submitted their own comment letters, taking an unusually aggressive stance that underscored the importance of the issue. Ordinarily, banks prefer to have trade groups and lobbyists do the talking for them.

But with profits — and the future model of the industry — at stake, Goldman Sachs, Morgan Stanley and Citigroup each submitted a comment letter, people briefed on the matter said. The letters were not yet public, but they were expected to be filed before the midnight deadline.

The draft rule is 300 pages long.  It could take five months to complete the draft.

Wall Street wants to delay the rule until after the 2012 elections.


Continue Reading on dealbook.nytimes.com

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7 thoughts on “New Rules Proposed for Big Banks. The Battle Is On.

  1. You stupid liberals on Wall Street shouldn't invest in Obama 4 years back …morons . What else you expect from marxist , you imbeciles ????


  3. What the hell… they want to forbid banks from using their money to speculate in commodities and stock markets?? !!!! But this administration has no problem using OUR TAX dollars for the same thing!!! Every damned failed "green" company the administration gives grants to is a speculation!!! Where's the logic?

  4. Where do you think banks get their money? It's not THEIR money, the money comes from the depositors. I understand that banks don't keep our money in a vault collecting dust, but I personally don't think they should be involved with investing in commodities. There are other investments that are less risky…I mean, it's not like the banks are going to pay US higher interest rates when the commodity investments made with OUR money pays off! No, some jerk CEO will get a check for a few million. But when they lose, WE pay! When you have the government willing to bail out banks, they will be more willing to invest in uber high risk investments because the risk is passed on to the taxpayers.

  5. @JoJo… yes and no. It's not all the deposits. The article say "their capital" not deposits. The banks make money from interest they get from making loans, from atm fees, check, credit card services and interest. the list goes on. Sure some banks needed bailouts because of the mortgage crash that was caused by the government, aka Freddie and Fannie brought to you by Dodds and Frank.
    How do you explain "Excess reserves held at the Federal Reserve are in the $1.6 trillion range." When a bank fails, it's insured, the depositer has a safety net. When the Government invests in Solyndra and it fails, we don't get a tax refund; we get hit with another tax.

  6. Joseph Bendzinski says:

    Well big banks and wall street, you invested money in Obummer. Well you got him including something else he has given everyone and everything he has come in contact with – the chicago gangster has put the knife in your back.

  7. Ann Wilson Kingsley says:

    What is the difference in a large bank manipulating the gold and silver markets and someone like Bunker Hunt doing the same thing in the 1970s? Certainly, if a private individual is refused the right to manipulate the gold and silver markets, large government controlled banks should be prohibited from engaging in that activity., In actuality, I do not believe that anyone besides big government controlled banks and mega-corporations that have been spawned by too "Big" government should have any controls on their speculation.