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October 11, 2011 in Business, Nation/World
FDIC backs ban on banks trading for own profit
WASHINGTON — Banks would be barred from trading for their own profit instead of their clients under a rule federal regulators proposed today.
The Federal Deposit Insurance Corp. backed the draft rule on a 3-0 vote. The ban on so-called proprietary trading was required under the financial overhaul law.
For years, banks had bet on risky investments with their own money. But when those bets go bad and banks fail, taxpayers could be forced to bail them out. That’s what happened during the 2008 financial crisis.
The Federal Reserve has also approved the draft of the Volcker Rule, named after former Fed Chairman Paul Volcker.
The Securities and Exchange Commission and a Treasury Department agency must still vote on it, and then the public has until January 13 to comment. The rule is expected to take effect next year after a final vote by all four regulators.
A ban on proprietary trading could help President Barack Obama in next year’s election by showing he has adopted tough rules to rein in risky trading on Wall Street. It might also lead some of the protesters on Wall Street to rally to his campaign.
The Volcker Rule was a key part of the financial overhaul law intended to blunt criticism that Obama was too lenient on the banks. He continued the bank bailouts that had begun under President George W. Bush.
Congress and Obama had high hopes for the rule. But they left most of the details for regulators to sort out. It’s unclear how strictly the ban will be enforced.
Many contend that the rule’s effect on risk-taking will be limited. Banks have a history of working around rules and exploiting loopholes. In this case, banks can make most trades simply by arguing that the trade offsets another risk that the bank bet on.
The rule was proposed by the Fed. Some critics argue the Fed often capitulates when bankers complain that regulations make it harder for them to do business.
Wall Street banks say the ban on proprietary trading could prevent them from buying and selling investments that their customers might want. It would also put U.S. financial firms at a competitive disadvantage to those in other countries.
At the same time, several big U.S. banks have already shut down their proprietary trading operations in response to the financial overhaul. Critics say they have merely spread those traders across other desks without ending their risky practices.
The rule also would limit banks’ investments in hedge funds and private equity funds, which are lightly regulated investment pools. Banks wouldn’t be allowed to own more than 3 percent of such a fund. In addition, a bank’s investments in such a fund couldn’t exceed 3 percent of its capital.
Before Congress passed the financial regulatory overhaul, banks had no limit on how much of those funds they could own. Still, typically on Wall Street, such investments already fall below the 3 percent threshold.
Banks could still put their clients’ money into those funds. They will still be able to manage such funds, and collect fees and a percentage of trading profits.
Seven firms or nonprofits win Agora Awards 
kkrimmer on October 11 at 9:39 a.m.
WILL AMERICANS HAVE GOP AMNESIA ELECTION DAY?
Bush Admin Barred Officials From Briefing Congress On Impending Financial Crisis in Fall 2008 — http://tinyurl.com/2frmajy
SEC Chairman Cox Admits Deregulation Caused Crisis
Bush Appointee Christopher Cox admitted the credit crisis was due to deregulation. http://tinyurl.com/nzz25g
Bush administration ignored clear warnings
Under Pressure, Bush Eased Lending Rules
WASHINGTON (AP) —The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to a of regulatory documents.http://tinyurl.com/5casnp
Hunterman on October 11 at 10:11 a.m.
Gee, it might not be right to gamble with somebody else’s money then force them to bail you out when you lose? And still give yourself multi-million dollar bonuses? Well, I never…
WE ARE THE 99%!
johnclarke on October 11 at 10:19 a.m.
Just redo everything the Republicans undid. Reregulate all the deregulations. Duh.
Then all the bankers and wall street pirates will whine and complain that they “can’t compete”. Bah.
liberal_in_right_wing_land on October 11 at 10:31 a.m.
Bankers are worse than the mob, they kill and destroy peoples lives legally.
Dazzeetrader11 on October 11 at 10:56 a.m.
I hope you liberals aren’t missing the point in the body of this article. Obama has done nothing to reverse the banks’ ability to make their own money using ours. Nothing. This present bill will be watered down to the nth but will be trumpeted as a “cool” thing done by the “coolest” president. He’s a fraud and hippocrit. Nothing has been done so far on credit swaps or derivative trading. Nothing.
What has been done is regulation of who gets a mortagae as the banks shed the inventory as if they’re krytonite. It’s not a market the banks can make money on anymore so it doesn’t matter. It’s a triumph of idiots.
Obama’s is Bush on steroid when it comes to favoring his bank friends. Look at hsi cabinet…chock full of wall streeters. Don’t be fooled. he’s done nothing.
The_Seer on October 11 at 10:57 a.m.
Glass Steagal anyone?
oneanddone on October 11 at 11:29 a.m.
Bush didn’t ruin the economy via banking regulation. The president has no such power. There’s an old saying, “The President proposes, the Congress disposes.” Barney Frank had much more to do with enabling abuses by, with, and for banks. However bad things are now it’s not Bush’s fault, it’s not Obama’s fault. It’s 100% the fault of Congress - both sides. Bush got us mired in war where we don’t need to be and Obama goes right along. I have no problem with a kick-ass approach but knock the other guy down and then leave. Don’t have recriminations which somehow require us to rebuild the local landfill into Rodeo Drive.
Hunterman on October 11 at 12:01 p.m.
What is liberal about getting all pissed off when somebody rips you off? Liberals and consertives mock each other and try to impress their own choirs by trying to out extreme each other while the rest of us watch with a WTF??? Both will destroy our country if left to their own devices. And both parties are to blame. The problem is few sane people get any attention because they are not shocking enough. ALL of us here are the 99%.
Dazzeetrader11 on October 11 at 12:07 p.m.
Nothing Hunter…I agree with your first post. What I was pointing to was that the liberal ding dongs widely praise Obama for correcting the Banker/Wall St mischief. Conservatives know better and have been using the rules as they still are. My point is that the left praises Obama and his boys for doing what?…nothing.
I’d rather be in the 99%. ….well sorta…
johnclarke on October 11 at 3:49 p.m.
Um, I don’t widely praise Obama for restoring a sensible regulatory environment, because it has not happened. The 3,000 banking lobbyists and the Republicans have successfully prevented that. Oh and I guess there is this little snag that new laws come from Congress, but no matter. The Fed could still use the SEC and FDIC etc. to start cracking the whip. Unfortunately, the Federal agencies have gotten too good at watching a crisis come and go, although when you have ding dong Republicans stripping their power, and systematically repealing regulations, well the results are somewhat obvious.
Join a credit union.
misjustice on October 11 at 6:48 p.m.
Yea! My peep, Glass Steagall should be re-instated; post haste!
One of my major beefs with Clinton, other than enacting the 1996 Telecommuncations Act which allowed big media to get even bigger and concentrated media ownership, was that he signed off on the repeal of Glass Steagall.
The Republican’ts, like Phil Gramm, had the majority vote in both houses but Clinton COULD have vetoed the bill; it likely would have been over ridden by a super majority, backed by the monied lobbyists (think Citigroup and BofA) for the banking/financial interests, but at least Clinton would have gone down fighting.
Where’s my tax cut?
johnclarke on October 11 at 7:32 p.m.
Gramm attached it to the budget, so Clinton ate it. Line item veto could have prevented it. I have noted that Clinton’s ego still will not allow him to admit it was a huge blunder. I remember the argument in favor of repeal; US banks could not compete against European banks. I see that worked out well for everyone.