WASHINGTON – A fragmented regulatory landscape and obstruction by lobbyists are to blame for a lack of progress in banning banks from betting with their own money, Paul Volcker said on Monday.
Volcker, a former chairman of the U.S. Federal Reserve, defended the rule that is named after him, which became law in 2010 as part of the Dodd-Frank overhaul of Wall Street to protect taxpayers from heavy bank bailouts.
But five different U.S. regulators are still hammering out final details after receiving a barrage of comments from the industry on the rule, which limits banks' exposure to risky investments such as hedge funds and private equity.
"This has been going on for weeks and months. How many times people told me six months ago, 'It'll be two weeks, Paul, we're going to put the regulation out,'" Volcker said during a discussion session at a conference.
The rule will allow firms to place up to 3 percent of their capital into private equity funds and also bans trading they are doing with their own capital with the sole purpose of making a profit for the bank, or proprietary trading.
Volcker, who is now 85, blamed most of the slowdown on the fact that so many regulatory agencies were working on the rule together, while hundreds of questions sent in by pro-bank lobbyists had also caused delays.
The Securities and Exchange Commission, the Commodity Futures Trading Commission, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Federal Reserve are all coordinating to finalize the rule.
Reorganizing these agencies was a missed chance when the Dodd-Frank rule was introduced in 2010, Volcker said, though he did not say which agencies he thought should be joined.
Recent talk has hinted at slow progress on the rule, one of the most contested pieces of the legislation that would end some of banks' most lucrative activities, even though many have already stopped in anticipation of the law.
It is unclear when the final Volcker rule, which had been scheduled for July 2012, will be unveiled. It may not be fully implemented for years to come.
Other banks are trying to work around the forthcoming rule.
Three sources familiar with the matter said Goldman Sachs Group Inc is attempting to keep investing in the profitable, albeit risky, business of buying and selling companies.. Goldman Sachs said it would comply with all elements of the Volcker rule once it was finalised.
In a lighter moment, Volcker pointed out shortcomings in how the proposed rule had been drafted.
"How many times have I heard when that preliminary rule came out, 'It's 300 pages long!' Well, I must say I couldn't read it then, it was so dense," he said. He also said the law's preamble was "not a masterpiece of clarity."
But he defended the aim of the rule, and brushed aside suggestions often made by investment bankers that proprietary trading is hard to distinguish from so-called market making, in which banks take positions to help clients trade.
"It's not a question of having to ex ante look at every possible trade and decide whether it's proprietary or not. The question is whether there's a pattern of proprietary trading and I'm perfectly confident that is ascertainable and doable."
He said every bank had sufficient statistics about its trading to decide the nature of each trade.
"You give me those statistics, I'll tell you what it is," Volcker said.