Page 12 - May-June 2012

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May/June 2012
Public Citizen News
Wall Street LinesCampaignCoffers toPareBackVolcker Rule
By Dana Gittings
Members of Congress pressing
to weaken a proposal to prohibit
banks from engaging in risky ac-
tivities received millions in cam-
paign contributions from the fi-
nancial services industry, says a
new Public Citizen report.
According to “Industry’s Mes-
sengers,” released March 27,
lawmakers trying to weaken the
Volcker Rule — one of the most
important reforms of the Dodd-
Frank Wall Street Reform and
Consumer Protection Act of 2010
— received a total of $66.7 million
in campaign contributions from
the financial services industry
from the 2008 elections through
the first quarter of 2012. In com-
parison, those pursuing stronger
protections for consumers re-
ceived $1.9 million.
In short, the average contri-
bution from the financial ser-
vices industry for those seeking
to give banks more leeway was
more than four times that of Con-
gress members seeking to rein
banks in.
“Members of Congress should
not serve as megaphones for
industry’s claims,” said Negah
Mouzoon, researcher for Public
Citizen’s Congress Watch divi-
sion and co-author of the report.
“They should amplify the pub-
lic’s call to prohibit banks from
engaging in the same risky finan-
cial activities that contributed to
the financial meltdown of 2008.”
The Volcker Rule aims to pro-
hibit practices such as propri-
etary trading, participating in
complex securitizations, owning
hedge funds or private equity
funds, and being involved in ac-
tions that conflict with custom-
er interests. Public Citizen has
pushed for a stronger, simpler
rule, arguing that banks should
maintain substantially more cap-
ital to prevent another taxpayer
bailout. President Barack Obama
has publicly endorsed the Volck-
er Rule.
The public had 120 days (until
mid-February) to comment on
the proposed rule. The Securi-
ties and Exchange Commission
(SEC), one of the agencies re-
sponsible for implementing the
rule, received more than 18,000
than 15,700 from Public Citizen
members and supporters.
Now that they have the com-
ments, regulators are finalizing
the rule. Although regulators
are supposed to finalize the rule
by July 21, 2012, they have ex-
pressed skepticism about wheth-
er they will meet the deadline.
After the rule goes into effect, fi-
nancial institutions will have two
years to comply.
Federal lawmakers submitted
24 letters during the comment
window. Public Citizen analyzed
these letters for the “Industry’s
Messengers” report and found
that 17 letters, signed by 172
members of Congress, sought
to weaken the Volcker Rule.
Only three letters, signed by 20
members, sought to strengthen
it. (Four members individually
submitted letters that did not
weigh in favor of strengthening
or weakening the rule.)
Industry opponents claim that
restricting proprietary trading
will raise the cost of capital and
disadvantage U.S. firms that com-
pete with overseas rivals. Public
Citizen and lawmakers support-
ing a stronger rule say these are
merely excuses for the financial
services industry to take large
risks with taxpayers’ money for
corporate benefit. Furthermore,
greater alignment with investor
interests should increase the de-
sirability of American banks.
“The United States should not
be intimidated into engaging in a
foolhardy race to the bottom on
financial regulation,” the report
said. “If certain banks are in-
clined to move operations over-
seas to avoid laws ensuring that
they are safe, sound and free of
conflicts of interest, then Ameri-
cans should say ‘good riddance.’”
The rule allows banks to en-
gage in legitimate market making
activities, acting as intermediar-
ies between buyers and sellers. It
prevents banks only from trading
for their own profit, rather than
for the benefit of customers. If
someone wants to trade for prof-
it, which can be highly risky, the
place to do it is a hedge fund or
other financial firm that, unlike a
bank, enjoys fewer government
subsidies or guarantees.
Banks don’t want
stricter rules
Lawmakers opposing the Vol-
cker Rule echoed the rhetoric of
banks and pro-industry opposi-
tion groups such as the Securi-
ties Industry and Financial Mar-
kets Association (SIFMA) and the
American Bankers Association
The biggest congressional ef-
fort to weaken the rule was led
by Rep. Randy Neugebauer (R-
Texas), who gathered 120 signa-
tures on his letter. Neugebauer
and his co-signers received $35.5
million in campaign contribu-
tions from the financial services
industry from election day 2008
through the first quarter of 2012.
The largest effort for a stronger
rule was led by Rep. Maurice D.
Hinchey (D-N.Y.). He gathered 16
signatories who, including him-
self, received $1.5 million in cam-
paign contributions.
Many of the letters sought to
alter the rule to exempt venture
capital firms, claiming that these
investments do not pose a dan-
ger to the banking system or the
economy. However, according to
Public Citizen’s report, venture
capital investments are risky by
definition. Creating an exemp-
tion for them also would open up
a loophole for other high-risk in-
“The industry should focus on
safe and sound banking instead
of trying to persuade Congress
to protect its license to gamble,”
said Bartlett Naylor, financial
policy advocate for Public Citi-
zen’s Congress Watch division
and report co-author.
To read Public Citizen’s report, visit
Public Citizen also helped Occupy the
SEC compose a 325-page comment
letter about the Volcker Rule that was
submitted to several regulatory agencies.
To read the letter, visit
Public Citizen Salutes . . .
the extraordinary generosity and commitment of our donors, who make our mission and goals their own. This list includes leadership donations that were received since Jan. 1, and our
Public Citizen Trustees and Foundations, whom we are proud to recognize throughout the year.
TRUSTEES ($25,000+)
Lisa Blue Baron
Mark A. Chavez
Glenn A. Garland
Jonathan E. Gertler
David and Sherry Gold
Dr. Neil Holtzman,
in memory of Dr. Barbara Starfield
Victor E. Long
Patrick Regan
Steve Skrovan and Shelley Powsner
Salvatore Zambri
President’s Circle ($10,000+)
Andrew S. Friedman
John Langen and Judith Nadell
Maria Ragucci
Director’s Circle ($5,000+)
Stephen B. Andrus
Attorney Information
Exchange Group
Medea Benjamin
Bruce Broillet
Center for Comprehensive Care
Randy and Polly Cherner
Richard Epstein
Donald and Martha Farley
Harvey Furgatch
Jeffrey M. Goldberg and
Allison Black
Joan Granlund
Browne Greene
Mike and Louise Malakoff
Jerry Neil Paul
Michael P. Rooney
Harriet Silber
Christine D. Spagnoli
Leadership Circle ($1,000+)
Elizabeth Abbe and Lewis Schneider
Carol Adler
Anne Andrews
David M. Arbogast
Colleen Dunn Bates
Michael Baum
Jere Beasley
Jim Bildner
William and Ilene Birge
Elizabeth Block
Elspeth G. Bobbs
Hugh Brady
Thomas J. Brandi
Beth O. Brien
Peter and Alice Broner
Paul D. Carrington
Daniel Castellaneta and
Deborah Lacusta
James C. Causey
Noam Chomsky
Gerald L. Clore
Matt and Courtenay Cohen
Consumer Attorneys
Association of Los Angeles
Wendell and Ginger Covalt
Katrin and Kevin Czinger
Eugene M. Decker III
Mary Charlotte Decker
Charles Delbaum
Thomas M. Dempsey
Carmen A. Eanni
Julie Eichenberger
Mike Eidson
Charles A. Eldridge
Diana and Fred Elghanayan
Henry and Nancy Elghanayan
Susan A. Estep
Thomas Fortune Fay
Scott Frank
Ivor and Barbara Freeman