There’s no time like a financial crisis even worse than the last one to gut the signature regulation stemming from said previous financial crisis, or so it seems to those in charge of enforcing it, who have finalized the demolition of the Volcker Rule at a time when very little else is going one.
The looser restrictions approved on Thursday will allow banks to more easily make investments in various areas of venture capital.
The rule changes will also allow banks to avoid having to set aside cash when making derivatives trades between different affiliates of the same firm.
In fairness, banks have done rather better in this crisis than the last one. That being said, they did so under the strictures of the old Volcker Rule, whose very purpose was to prevent banks from putting money that the taxpayer would have to backstop into risky investments and to keep them from using derivatives from blowing up the financial system. Which is to say that President Trump and his cronies calling this “Volcker 2.0” definitely has its late namesake spinning angrily in his grave.
Before he died in December at age 92, Volcker criticized the rule change, saying it “amplifies risk in the financial system, increases moral hazard and erodes protections against conflicts of interest that were so glaringly on display during the last crisis.”
Whatever they’re calling the thing, investors sure seem to think that the Volcker Rule and all it stood for is a dead letter, because, of course, it is.
Shares of big banks including JPMorgan Chase, Goldman Sachs, Wells Fargo and Morgan Stanley were all trading more than 2% higher following the announcement, reversing declines in the premarket…. “As a former chair of the FDIC, it won’t surprise you to hear me say that that $40 billion dollars that will no longer be in banks to protect them against derivatives exposures” will likely increase risk to the government, Bair said Thursday on CNBC’s Squawk in the Street.
Federal banking agencies ease Volcker Rule restrictions [AP]
Banks Get Easier Volcker Rule and $40 Billion Break on Swaps [Bloomberg]
Bank stocks surge after regulators ease Volcker Rule, JPMorgan Chase climbs 2% [CNBC]