Volcker Rewrite Only Widens Existing Loopholes
The landmark banking rule always allowed for plenty of gray areas.
He knows it when he sees it.
Photographer: Brendan Smialowski/AFP/Getty Images
The Volcker Rule — which limits banks from risking their own, and more importantly, their depositors’, money on the trading floor — was always supposed to be a regulation that was all about what feels right. Former Federal Reserve chairman Paul Volcker said as much when he advocated for the rule shortly after the financial crisis, equating proprietary trading to pornography with the old line that you know it when you see it.
Nonetheless, in the four years since it has been around, the implementation of the actual Volcker Rule, the one that is more than 70 pages long (though not 800 as critics often claim) has been more about process than principals. Lots of trades that look like proprietary trading have been nonetheless deemed doable under Volcker in part because, by the letter of the law, they’re allowed. The rule has lots of gray areas. I made a list of them a few years ago. But there are more recent examples.