You get so caught up in the barrage of political and pandemic news, that other news, sometimes, slips right by. When you’re reading a headline like: “Trump Stuns Observers At Rambling, Incoherent Press Conference,” in The National Memo, or: “LT. Gen. Honore’ unloads profanity on Trump over [COVID-19] testing claim…” in Raw Story, news about a bank rule being rolled back, maybe, isn’t quite as compelling.
But, then again… the Volker Rule, that was “written in the wake of the financial crisis,” more than a decade ago, is being rolled back, according to a CNN story. That story, and another article in Huffington Post, took me back in time to the summer of 2012. I’ll explain why, in a minute, but first, more about the Volker Rule rollback.
Earlier this month, CNN reported that federal financial regulators were planning to “make it easier to let banks invest in venture capital funds and also relax some limitations on derivatives trading.”
While some Volker Rule restrictions on financial firms have been described as ‘onerous,’ the Volker Rule was “meant to curb excessive risk-taking at the nation’s largest banks by barring them from making speculative bets in securities markets for their own benefit. The rule also forbade banks from holding a financial interest in hedge funds or private equity funds that were involved in such markets,” according to the Huffington Post article.
The Volker Rule rollback is seen by the financial industry “as great victories for small businesses and the American economy…We welcome the measured steps taken…by the FDIC, which will allow banks to further support the economy at this challenging time,” the American Bankers Association CEO wrote in a statement.
Well, maybe that seems all well and good, but the Huffington Post story continues:
Though the new standards augur better short-term profits for the financial sector, they risk ruin for the broader economy. Venture capital funds back startups, which are notorious for failing. Allowing unlimited bank investments in risky new enterprises is not a good way to guarantee the long-term health of the American payments system or the market in traditional lending that keeps large and small businesses afloat.
Well, I’ll be darned! Back in the summer of 2012 — on June 28, to be exact — there was an article in American Banker, a financial industry publication, that began with the words: “As politicians and activists fought to regulate a bank ATM fee during a multi-year battle, beginning in the 1990s, financial firms were busy developing collateralized debt obligations and other exotic (financial) instruments that would nearly topple the global economy in 2008.” I’d written that article — and other commentary, subsequently, in the same publication — suggesting that financial firms needed to get back to basics, to the fundamentals of their business, so that, hopefully there wouldn’t be another crisis, like the one that began in 2008.
Yeah, that summer, years ago. I remember it well.