The Volcker Rule is fatally flawed

President Obama meets with his Economic Recovery Advisory Board, led by Paul Volcker, on Oct. 10, 2010, at the White House.

Article Highlights

  • Even Rep. #BarneyFrank, co-author of the #VolckerRule, has urged regulators to simplify it

    Tweet This

  • No one has been able to point to bank proprietary trading as a factor in weakening banks before the 2008 financial panic

    Tweet This

  • By 2008, 55% bank lending was based on real estate, a trend that could lead to more banking crises in a downturn

    Tweet This

Nearly two years ago, in the wake of the financial crisis, Congress passed and President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. Part of that law, the Volcker Rule-which prohibits banks and their affiliates from engaging in bond trading for their own account-is garnering a lot of attention in Washington these days, none of it positive.

Delegations from foreign countries have complained about its effect on sovereign debt. A bipartisan group of senators has recommended a delay in its scheduled implementation this July, and 26 House Democrats signed a letter pointing out that teachers, police officers and private employees' pension funds stand to lose because of the rule. Even Rep. Barney Frank, co-author of the provision, has urged regulators to simplify it.

Simplification sounds like a reasonable idea, but it's much easier said than done. The regulation is almost 300 pages and contains over 1,000 separate questions for banks and their associates. That's not because the regulators delight in abusing the regulated, but because the regulators are grappling with an impossible problem-how to prohibit proprietary bond trading while preserving bank activities that are vital to the health of the capital markets.

The full text of this article is available via subscription to The Wall Street Journal. It will be posted to AEI.org on Monday, April 16.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Peter J.
Wallison

What's new on AEI

Defeating ISIS: AEI experts weigh-in before the president’s address on Wednesday
image Degrading, defeating, and destroying the Islamic State
image Wealth Building Home Loan: Building wealth through homeownership and retirement savings
image The $3 iPhone
AEI on Facebook
Events Calendar
  • 15
    MON
  • 16
    TUE
  • 17
    WED
  • 18
    THU
  • 19
    FRI
Tuesday, September 16, 2014 | 5:00 p.m. – 6:00 p.m.
The Constitution as political theory

Please join us for the third-annual Walter Berns Constitution Day Lecture as James Ceasar, Harry F. Byrd Professor of Politics at the University of Virginia, explores some of the Constitution’s most significant contributions to political theory, focusing on themes that have been largely unexamined in current scholarship.

Wednesday, September 17, 2014 | 8:10 a.m. – Thursday, September 18, 2014 | 1:30 p.m.
Third international conference on housing risk: New risk measures and their applications

We invite you to join us for this year’s international conference on housing risk — cosponsored by the Collateral Risk Network and AEI International Center on Housing Risk — which will focus on new mortgage and collateral risk measures and their applications.

Event Registration is Closed
Thursday, September 18, 2014 | 2:15 p.m. – 3:00 p.m.
Speaker of the House John Boehner on resetting America’s economic foundation

Please join us as Speaker John Boehner (R-OH) delivers his five-point policy vision to reset America’s economy.

Event Registration is Closed
Friday, September 19, 2014 | 9:15 a.m. – 11:00 a.m.
Reforming Medicare: What does the public think?

Please join us as a panel of distinguished experts explore the implications of the report and the consumer role in shaping the future of Medicare.

Event Registration is Closed
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.