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Journalism of Courage
When US regulators adopt the Volcker rule on Tuesday,they will make good on a promise by politicians to rein in banks ability to gamble with their own money.
The coordinated action by five separate regulatory agencies is seen sparking a court challenge as Wall Street tries once again to avoid one of the harshest elements of the post-financial crisis crackdown.
The measure bans banks from making bets for their own profits,an activity known as proprietary trading that regulators deemed too risky for banks that enjoy government backstops. But banks argue the roughly 800-page rule will hurt markets because it is virtually impossible to distinguish profit-seeking trades from those needed to hedge against risks or trades executed on behalf of clients.
For something of this magnitude and this controversial … there will be somebody who will challenge it, said Brian Cartwright,a former general counsel at the Securities and Exchange Commission,one of the agencies voting on the measure.
Banks had hoped the rule would be watered down from when it was proposed more than two years ago,but JPMorgan Chase & Cos $6 billion loss in 2012 named the London Whale after the giant trading bets the bank took put an end to that speculation.
The final rule is expected to tighten potential loopholes,and could trim billions of dollars in annual revenues from large banks including Goldman Sachs,Morgan Stanley and JPMorgan.
Legal experts have identified three possible avenues of attack once the rule becomes final. Banks could challenge on procedural grounds,including that they did not have an adequate chance to comment on major new elements the final rule contains from when it was proposed two years ago.
They could also argue that certain regulators did not sufficiently analyse the costs and benefits of the rule. And lastly,they could argue that parts of the rule hammered out by the regulators contradicts the Dodd-Frank law. The five agencies involved in the final vote are the Federal Reserve,the Federal Deposit Insurance Corp,the Office of the Comptroller of the Currency,the SEC and the Commodity Futures Trading Commission.
