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“Regulators today released the final so-called Volcker rule designed to prevent Wall Street banks from placing the kinds of risky bets that helped magnify the 2008 mortgage market collapse into a spectacular failure of the financial system leading to trillions of dollars in lost retirement income and the loss of millions of jobs and millions of homes. Further, had the rule been enacted more quickly, without self-serving pushback from the big banks, it might have prevented JPM Chase’s London Whale losses of over $6 billion last year.
“The final rule is stronger than the proposed rule and stronger than the rule that the banks wanted, reflecting the outpouring of support from citizens across the country, in favor of a robust Volcker rule. The rule still has several exceptions and caveats, however, which will require vigilant agency implementation and enforcement going forward. Further, judges will need to firmly reject anticipated attacks by powerful special interests.
“While the 1930s Glass-Steagall Act relied on a structural wall between commercial and investment banking to protect consumer deposits and the financial system, the Volcker Rule permits trading and investment banking activities to remain within banks, but relies on regulatory definitions to distinguish speculative trading from other forms of trading. Not surprisingly, this is a much more difficult line to police.
“Compliance will depend on the strong hand of the regulators. Count on the banks to push its definitional limits.
“Along with other reform advocates, we will watch closely to see if additional actions, such as breaking up the too-big-to-manage banks, are required.
“Finally, we commend Sens. Jeff Merkley (OR) and Carl Levin (MI) and others who helped to champion the Volcker rule through Congress against a phalanx of bank lobbyists. We also commend new Treasury Secretary Lew for pushing to get the delayed rule finally out.”
U.S. PIRG, the federation of state Public Interest Research Groups, is a non-profit, non-partisan public interest advocacy organization. Follow us on Twitter (@uspirg).
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