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Regulation Amp Governance
Volcker lambasts Wall Street lobbying
From the Financial Times of Fri, 19 Dec 2014 19:40:46 GMT
President Obama Addresses U.S. Chamber Of Commerce...Paul Volcker, chairman of U.S. President Barack Obama's Economic Recovery Advisory Board, listens as Obama speaks at the U.S. Chamber of Commerce in Washington, D.C., U.S., on Monday, Feb. 7, 2011. Obama urged businesses to join him in an effort to change a "burdensome" corporate tax code, calling for "something smarter, something simpler, something fairer." Photographer: Andrew Harrer/Bloomberg *** Local Caption *** Paul Volcker©Bloomberg

Paul Volcker

Paul Volcker, the former Federal Reserve chairman, has lambasted the "eternal lobbying" of Wall Street after regulators granted the industry more time to comply with a rule designed to prevent them from owning hedge funds.

In a withering statement — as much an attack on his successors at the Fed as a critique of banks — Mr Volcker said: “It is striking, that the world's leading investment bankers, noted for their cleverness and agility in advising clients on how to restructure companies and even industries however complicated, apparently can't manage the orderly reorganisation of their own activities in more than five years.”

“Or, do I understand that lobbying is eternal, and by 2017 or beyond, the expectation can be fostered that the law itself can be changed?”

The Fed and its fellow regulators this week gave the banks until 2017 to comply with a part of the Volcker rule, named after Mr Volcker, which puts strict limitations on their ownership of funds.

Banks had been supposed to comply by next year. The law containing the Volcker rule was passed in 2010. As well as its limitations on fund ownership, the rule contains a prohibition on proprietary trading. Both parts of the rule are intended to stop banks taking on too much risk.

But banks have argued that the way the rule was written affects a far broader range of funds than was originally intended and to try to sell every last fund interest would be complex.

After the reprieve, lawyers from Sullivan and Cromwell wrote: “It appears that the Federal Reserve concluded that these extensions enhance the safety and soundness of the banking industry by avoiding losses that would occur from precipitate divestitures into largely illiquid markets.”

It is striking, that the world's leading investment bankers, noted for their cleverness and agility... apparently can't manage the orderly reorganisation of their own activities in more than five years

- Paul Volcker, former Federal Reserve chairman

Famous for getting inflation under control as Fed chairman in the 1970s, Mr Volcker’s endorsement or criticism still carries enormous weight. President Barack Obama announced he would add the Volcker rule to the 2010 regulatory reforms late in the process, at a time when the White House was being criticised for not going far enough to reform the financial industry after the crisis.

Last week banks tried to tap the cachet of the former Fed chairman by noting that he was not in favour of a rule seeking to put restrictions on derivatives trading. The rule was overturned by Congress in a contentious vote.

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