This Is Such a Disaster in the Making II
links for 2010-01-26

This Is...

Briefing on the "Volcker Rule":

FT Alphaville » The background to the Volcker rule:

Q: I’m wondering why these proposals were not included in the comprehensive legislation you proposed in June. Already the House has acted; these provisions are not in the House bill. You’re going to have to go back now as part of the process. Why now? Why not back in June?

MICHAEL BARR: As you know, Jim, in June in our white paper, we talked about making sure we limited the activities of risky firms, and being sure that we address conflicts with respect to proprietary trading and hedge funds. The basic authority is provided in Chairman Frank’s legislation, for regulators to break apart major financial firms or to address problems with risky activities to the extent that they cause the firm to act in an unsafe or unsound manner that threatens the financial system. So we worked very closely with Chairman Frank on that already.... So this is an aspect of that overall reform. The underlying authority is in the legislation, strong legislation, that Chairman Frank passed. What we’re doing today is saying regulators not only have the discretion to do that, they need to do that....

Q I have a follow-up to something earlier where you said that these authorities are included in the Frank bill. So there would be no additional legislation beyond what that is for this to take effect. So is there some official rulemaking or some directive the President has to make, or is this just a statement saying regulators should do this?

MICHAEL BARR: No, no, I’m sorry. I want to be clear. We want to put in the legislation — there’s legislative authority, there’s discretion for the regulators to take on risky activities with respect to the largest financial firms. We want to take legislative steps. We will ask Chairman Dodd and Chairman Frank to supplement what is already in their bills with legislative steps that don’t just authorize but actually require regulators to prohibit one form of that risky activity, and that’s proprietary trading by firms that own banks. So it is a legislative step. It is moving what is a discretionary authority that Chairman Frank provides in his bill to a requirement on the regulators to act in this particular area...