The so-called Volcker Rule, intended to rein in American banks’ risky speculative lending, was approved last week by the five federal agencies that will implement it.
The targeted banks and Wall Street in general, considered to have been responsible for the costly collapse of 2008, the results of which continue to plague the U.S. and world economy, have fought the regulation since its conception in 2010, and are expected to maintain their resistance. The rule, which seeks to prevent banks with federally insured deposits from trading for their own profit, will take effect in July 2015.
Armies of lobbyists, lawyers and business groups have pressured the implementing agencies to evade the oversight imposed by the 50-page rule, named after former Federal Reserve Chairman Paul A. Volcker. Maintaining the rule will be made more difficult by the fact that five federal bodies — the Federal Reserve, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corp. and the Comptroller of the Currency — will be involved.
The need for such regulation, however, was made clear by the behavior of banks and investment firms since the trouble surfaced in 2007. Their activities in operating hedge funds and proprietary trading on their own behalf has cost taxpayers billions of dollars while Wall Street bonuses and incentive packages have continued to rise. There has also been a shameful lack of accountability on the part of the financial institutions which the Volcker Rule could help to remedy.
In the meantime, the administration of President Barack Obama, tenaciously dedicated to seeing the regulation work and the financial system reformed, will need to hang tough on enforcement and work hard to coordinate the oversight of the five federal agencies.