Home Economy Fed’s Tarullo says Volcker rule may be hurting trading

Fed’s Tarullo says Volcker rule may be hurting trading

3 min read
0
0
62


         Fed’s Tarullo says Volcker rule may be hurting trading

Federal Reserve Gov. Daniel Tarullo, in his farewell speech Tuesday, warned against scrapping the tough bank regulations in the Dodd-Frank law but said certain elements, like the controversial Volcker rule, could be tweaked.

There is a swirl of talk from Republicans, including President Donald Trump, that the Dodd-Frank law should be scaled back.

But Tarullo said the strong capital requirements of the law must be maintained.

“Neither regulators nor legislators should agree to changes that would effectively weaken that [strong capital] regime, whether directly or indirectly. It would be tragic if the lessons of the financial crisis were forgotten so quickly,” he said.

Tarullo became the Fed’s quarterback of bank reform when he joined the central bank in January 2009 during the depths of the financial crisis.

When Congress passed Dodd-Frank, it created a new post of vice-chairman for bank regulation. But the Obama White House never named Tarullo to the position out of a sense that he would not be confirmed.

In a speech at Princeton University, Tarullo said he was certain that some tweaks could be made to the law without endangering financial stability.

For instance, he agreed with critics that the Volcker rule “may be having a deleterious effect on market making, particularly for some less liquid issues.”

Some analysts blamed the Volcker rule for a sharp selloff in the bond market in October 2014.

The Volcker rule mandates that no insured depository institution should be permitted to engage in proprietary trading.

Tarullo said the measure was just too complicated. Five different agencies were involved in making the rule, he noted. And regulators have struggled to distinguish market-making from proprietary trading.

The Fed governor recommended requiring progressively higher amounts of capital as trading inventories age — a pretty good indicator that market-making is morphing into proprietary trading.

In general, Tarullo said it was a bit early to judge the balance of the costs and benefits of many of the new rules.

But given “the record levels of commercial bank profits recorded in 2016, it would seem a substantial overreach to claim that the new regulatory system is broadly hamstringing either the banking industry or the economy.”

Load More Related Articles
Load More By Vanessa Hill
Load More In Economy

Leave a Reply

Your email address will not be published. Required fields are marked *

Check Also

GDP grows at stronger-than-forecast 3% rate in third quarter

The numbers: The U.S. grew at a solid 3% annual pace in third quarter despite damage from …