Merkley Urges Financial Regulators to Reject Gutting of Volcker Rule

WASHINGTON, D.C. – Oregon’s Senator Jeff Merkley, who co-authored the Volcker Rule along with former Sen. Carl Levin (D-MI), today strongly urged federal financial regulators to reject a proposed rewrite of the landmark financial reform provision that would place gaping loopholes into the rule’s protections.

“Your agencies have been charged with enforcement of this rule in order to protect taxpayers from profit-driven proprietary trading,” Merkley wrote in a letter to the heads of the five agencies. “The proposed changes to the Volcker Rule voted on by the FDIC are damaging to its core. If finalized, this rulemaking would constitute yet another attempt to undermine a critical provision of Dodd-Frank, at a time of growing concern about the stability of our economy.”

Merkley noted that substantial evidence already exists of big banks flouting the rule. Instead of working to investigate these apparent instances of non-compliance and to enforce the existing rule, regulators appear to be sanctioning non-compliance and further watering down the rule in response to big banks’ lobbying.

Former Fed Chairman Paul Volcker, for whom the rule is named, has also denounced the proposed rewrite. Volcker lambasted the role of “well-compensated industry lobbyists,” and wrote, “The new rule amplifies risk in the financial system, increases moral hazard and erodes protections against conflicts of interest that were so glaringly on display during the last crisis.”

“The Volcker Rule not only sought to undo damage of past abuses of proprietary trading, it also safeguards working families’ hard-earned savings from exploitation by financial institutions driven by their bottom line,” Merkley continued in today’s letter. “I urge leadership of the remaining agencies that have not yet voted to reject this ill-conceived proposal. The need for limits on proprietary trading are as essential as they were during the Great Recession. This is a crucial time for our economy, and we cannot afford another economic crisis fueled by corporate greed. Weakening the Volcker Rule would signal banking regulators’ lack of interest in the financial well-being of working American families and the global economy.”

The proposed rewrite has been passed by the Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC), but must still be passed by the Federal Reserve, the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC).

The full text of Merkley’s letter is available here and follows below.

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Dear Chairman Powell, Chair McWilliams, Comptroller Otting, Chairman Clayton, and Chairman Tarbert:

I am deeply concerned by the Federal Deposit Insurance Corporation (FDIC) vote and Office of the Comptroller of the Currency (OCC) approval on August 20, 2019 to adopt changes to the enforcement of Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, also known as the Volcker Rule. Your agencies have been charged with enforcement of this rule in order to protect taxpayers from profit-driven proprietary trading. The proposed changes to the Volcker Rule approved by the FDIC and OCC are damaging to its core.^[1] If finalized, this rulemaking would constitute yet another attempt to undermine a critical provision of Dodd-Frank, at a time of growing concern about the stability of our economy.

As I stated in my May 31, 2019 letter to your agencies, recent actions towards weakening the Volcker Rule have blatantly ignored evidence of certain banks’ substantial non-compliance with the rule. Following my letter, I expected agencies to dig deeper and, where appropriate, enforce the Volcker Rule’s relevant provisions. Instead, we are seeing that regulatory agencies are now poised to sanction noncompliance by further watering down what constitutes proprietary trading.

The dangers of proprietary trading are clear. The Federal Reserve Board’s own analysis of the Volcker Rule raised serious questions.^[2]  Banks amassed weekly trading profits of as much as $117 million, weekly losses up to $84 million and weekly exposures as high as $505 million.^[3] These findings not only highlight traders raking in windfall profits and suffering outsized losses, but also the frequency and risk with which they may be doing so.^[4] 

Dodd-Frank is considered one of the most important structural financial reforms to have emerged from the 2008 financial crisis—a reform that the Federal Reserve has stated had “economically large financial stability benefits.”^[5] The impacts of this must be taken seriously. The Volcker Rule not only sought to undo damage of past abuses of proprietary trading, it also safeguards working families’ hard-earned savings from exploitation by financial institutions driven by their bottom line.

I urge leadership of the remaining agencies that have not yet voted to reject this ill-conceived proposal. The need for limits on proprietary trading are as essential as they were during the Great Recession. This is a crucial time for our economy, and we cannot afford another economic crisis fueled by corporate greed. Weakening the Volcker Rule would signal banking regulators’ lack of interest in the financial well-being of working American families and the global economy.

As you consider the future of the Volcker Rule, and by extension the welfare of the American people, I stand ready to work with all five agencies to prevent financial institutions from engaging in reckless and speculative practices.

Sincerely,