Volcker Rule On The Rocks

Nov 20 2013 | 12:50pm ET

The White House wants the Volcker rule—the centerpiece of the 2010 Dodd-Frank financial regulation reform law—enacted by the end of the year. But it's running into resistance from one of President Barack Obama's own recent appointments.

The Volcker rule is designed to bar banks from proprietary trading and strictly limit their alternative investments activities. But as far as newly-minted Securities and Exchange Commission member Kara Stein is concerned, as presently written, it doesn't go far enough.

Stein, who joined the SEC in August, is threatening to vote against the current rule, which she believes is too full of loopholes, The Wall Street Journal reports. If she follows through on that threat, SEC Chairman Mary Jo White will not have enough votes to pass it; both of the SEC's Republican commissioners have pledged to oppose it.

Stein, a former Senate staffer, was involved in many aspects of crafting Dodd-Frank, and fears that the proposal is at odds with the purposes intended by Congress. In particular, she is concerned that the rule doesn't define clearly the hedging exception to the prop. trading ban. During the negotiations among regulators to write the rule, the SEC struck out a requirement that hedges be "reasonably correlated" with other holdings.

Stein wants that language back in the rule, as well as a requirement that bank CEO pledge to comply with it.

Stein's position is supported by Sens. Carl Levin (D-Mich.) and Jeff Merkley (D-Ore.), two of the rule's main backers in Congress, according to the Journal.

Gary Gensler, the outgoing chairman of the Commodity Futures Trading Commission, reportedly agrees with Stein that the proposed rule doesn't go far enough on limiting prop. trading.

Treasury Secretary Jacob Lew yesterday urged regulators to complete the rule by the end of the year.

"The processes cannot go on forever," Lew said. And he gave Stein and Gensler some ammunition, urging regulators to "err on the side of doing a little more, and then correct it if you've gone too far."


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