Volting Volcker.

Attribution:  Diego Azubel/EPA

Attribution: Diego Azubel/EPA

I have blogged a fair amount about the Volcker Rule and the risks associated with rolling it back.

Janet Yellen, Elizabeth Warren, Bernie Sanders and even Paul Volcker himself have warned about taking the anti-regulation movement too far.

In fact, in early April new Fed Reserve Chair Jerome Powell admitted that he did not see evidence of Dodd-Frank holding back banks. He appeared to support keeping that regulation in place.

It now seems that he has changed his mind. His backflip now moves his position very close to Donald Trump, who has been proposing to shred Volcker for some time now, although not in so many words. 

Just to refresh, the Volcker Rule refers to section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. It was designed to prohibit insured depositary banks and institutions from proprietary dealing in risky assets and acquiring, investing in or sponsoring private equity and hedge funds.

Since its inception, many of those 'regulated' by Volcker have been trying to volt over it, or better still, shred it.  

Now they might get their chance, particularly if Jerome Powell continues to weaken.

Last week, Volcker was removed for banks with assets up to $10 billion, a warm up volt that was supported by Powell. Although more than 50% of the US banking sector is controlled by a handful of once thought of 'too big to fail' banks, there are thousands of participants with assets of up to $10 billion. 

Check out this article from the Editorial Board of the New York Times which provides an additional perspective on the impending 'pole volt', that is currently in warm up.

A comment that should ring loud:

'The Great Recession amply demonstrated that when banks chose between proprietary trading and customers' interests, the customers lost out. And we haven't even had any kind of market jolt to thoroughly test what would happen under the existing rules.'  New York Times, Editorial Board.

As the Great Recession in the US caused a global financial contagion that continues to shape the global economy and asset valuations (yep, even in your part of the world), it is critical to keep an eye on these and similar regulatory developments in the US. 

Mike


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