NEW YORK ( TheStreet) -- Bank regulators have done a bang-up job in making sure that the nation's largest financial institutions build up sufficient capital levels to weather another economic storm, but the Federal Reserve's proposal to implement the "Volcker Rule" still hasn't been finalized.
Last May, I wrote an opinion piece called Volcker Rule: Now or Never, saying it was time for Congress to hold a hearing to discuss exactly what legislators meant when banning proprietary trading by the nation's largest banks, because the Federal Reserve was obviously having difficulty implementing the rule. Almost a year later, Congress hasn't held a hearing on Volcker and the Federal Reserve still hasn't finalized its rules.
The Dodd-Frank Wall Street Reform and Consumer Protection Act -- signed into law by President Obama in July 2010 -- included the Volcker Rule, a provision supported by senators Carl Levin (D., Mich.) and Jeff Merkley (D., Ore.). The Federal Reserve in October 2011 released its draft proposal for rules to implement the Volcker Rule, which caused plenty of confusion, with the Fed soliciting industry and public comment on over 300 questions. The Fed's public comment period over the rule ended in January 2012.
While banning proprietary trading by financial companies enjoying Federal Deposit Insurance Corp. backing for their deposits, the Volcker Rule has exceptions for some hedge trading. The Volcker Rule also has exceptions for market-making activities, allowing banks with brokerage subsidiaries to maintain limited inventories of securities. With neither the hedge-trading exceptions nor the market-making exceptions settled, the Fed last April announced that banks would be required to comply with the Volcker Rule by July 21, 2014.
|Paul Volcker, economist, former Fed chairman and proposer of what has become known as the "Volcker Rule"|