Market Overview

Bloomberg: The Fight Over Volcker Rule Shifting in Wall Street's Favor


According to a new Bloomberg article, a massive lobbying effort by Wall Street firms such as Goldman Sachs (NYSE: GS), J.P. Morgan Chase (NYSE: JPM), and Credit Suisse (NYSE: CS) has made an impact on lawmakers' plans for the Volcker rule. The legislation is designed to curb speculation by Wall Street banks and prevent them from making speculative trades for their own accounts.

In good times, this business has been a major profit driver at firms such as Goldman and J.P. Morgan, but in light of the financial crisis, the systemic risks of this activity have come to the forefront. Wall Street lobbying efforts, however, appear to be working to more favorably shape the design of the Volcker rule from the banks' perspective.

Bloomberg reports that last week Barney Frank, who co-authored the legislation, urged regulators to simplify the first draft of the rule. Also, a bipartisan group of senators proposed delaying the law's effective date. The lobbying effort has been focused on regulators from five separate agencies and is designed to get them to scale back the draft of the Volcker rule.

The strategy of the banks has been to enlist a myriad of interested parties on their side of the debate. These have included institutional investors, industrial companies, municipal officials and foreign governments according to Bloomberg. The banks have been telling customers that the legislation will result in higher costs and less-liquid markets. Not everyone in the financial industry is being cajoled by the banks' arguments.

Bloomberg quoted Camden Fine, the president of the Independent Community Bankers of America, as saying “It's the same song, different verse,” he said. “A bunch of these guys have just sort of forgotten the last four years." Fine's organization refused overtures from Wall Street to openly oppose the Volcker rule.

Nevertheless, the lobbying efforts have been effective by most accounts and there is plenty of time for more substantive changes to be made to the draft of the legislation. Federal Reserve chairman Ben Bernanke has acknowledged that the Volcker rule measure will not be finished by the July 21 deadline imposed by Congress.

From the banks' perspective, the ability to delay and re-frame the debate over the law will likely be extremely valuable. Amid an improving economy, fading memories of the financial crisis, and shifting political winds, Wall Street's push against the Volcker rule is likely get even stronger and recent developments indicate a willingness on the part of politicians to alter the shape of the legislation.

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