American Enterprise Institute economist Peter Wallison explains why the recent JP Morgan losses are proof that the Volcker Rule is unworkable and should be abandoned.

On December 20, 2011 the Federal Reserve Board (FRB) issued a Notice of Proposed Rulemaking to implement the heightened supervisory standards and early remediation requirements that are intended to play a crucial role in achieving the aims of the Dodd-Frank Act. 

The $2 billion loss at JPMorgan Chase (JPM) has reopened debate on the Volcker rule. The proponents of the rule have seized on the story as proof that the Volcker rule is necessary and should be quickly put into effect by regulation. In reality, however, if the facts are as thus far reported, what happened at JPMorgan is proof that the Volcker rule is unworkable and should be repealed. 

As cross-country contacts became more numerous and more complex, so did efforts to create a coherent framework for coordinating the activities of central banks and supervisory authorities in different countries.  The most consequential efforts have taken place under the aegis of the Basel Committee.

Federal bank regulatory agencies should publish their functional budgets and charge explicitly for the full cost of examinations and supervision.

The Dodd-Frank legislation has many problems and omissions, and much is still uncertain about implementation. But the new liquidation authority provides for the possibility of making it so that future crises do not involve the bailouts of creditors that truly embodied the problem of having banks that are too big to fail.

This statement is available here as an Adobe PDF.  

The Basel Committee on Banking Supervision (Basel Committee) is proposing to regulate bank liquidity. This marks a major innovation in the Basel approach to international banking regulation.