RIP Volcker Rule, Buried by Wall Street Regulators

Statement of Bartlett Naylor, Financial Policy Advocate, Public Citizen

Note: Today, federal bank regulators proposed to weaken restrictions on when banks can invest in venture capital funds under the Volcker Rule, the colloquial name for Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposal overturns restrictions banks currently face when investing in high-risk startup firms and was approved for public comment over the objection of Democratic-aligned regulators.

After former chair of the Federal Reserve Paul Volcker passed away, President Donald Trump’s regulators buried Volcker’s most important legacy, the eponymous Volcker Rule. Almost nothing remains of his effort to stop taxpayer-financed banks from gambling with customer deposits.

Is the Trump administration trying to recreate the unregulated free-for-all that led to the financial crisis and Great Recession? It sure looks that way.

Dodd-Frank always suffered from an overreliance on regulatory discretion. The Volcker Rule itself left too much leeway for political appointees, and now Trump’s megabank-captured regulators have fully exploited that leeway.

Congress must restore Glass-Steagall, the clear separation between commercial and investment banking. Laws that politely request banks or agencies to do the right thing will be smothered by Wall Street lobbyists.