Wall Street’s lead lobbying group said on Monday it wants to help shape the “Volcker rule” on risky bank trading, among many other provisions, as the biggest financial reforms since the 1930s are implemented.
Two years after a severe credit crisis rocked the world financial order and unleashed a wave of reforms, the Securities Industry and Financial Markets Association opened its annual conference vowing to push for rules “that actually work.”
“SIFMA will continue to work with the (Obama) administration, regulators and Congress to continue to restore faith and confidence in our financial markets, including effectively implementing the Dodd-Frank Act,” said association President Tim Ryan at the opening of the conference.
SIFMA represents hundreds of securities firms, banks and asset managers, including Goldman Sachs and Bank of America.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in July by President Barack Obama, touched every corner of the U.S. financial system and left many details to be worked out in months ahead by regulatory agencies.
Congress laid down some parameters for regulators on defining “proprietary trading,” but left room for banks to retain some in-house trading operations in an area where drawing clear lines may be difficult.
Republicans who won control of the U.S. House of Representatives in last week’s elections have vowed to try to roll back parts of Dodd-Frank, but face an uphill climb against continued Democratic Senate dominance and Obama’s veto pen.
The Federal Reserve, the Treasury Department and other agencies are racing to complete hundreds of rules and studies mandated under Dodd-Frank, with lobbyists for banks and brokerages pushing to soften some provisions.
PROPRIETARY TRADING
Among these is the three-part Volcker rule, which curbs banks ability to trade for their own accounts unrelated to customer needs, known as proprietary trading; limits the involvement of banks with hedge funds and private equity firms; and sets a new cap on the domestic expansion capacity of the largest banks.
“The important aspect of this set of rulemaking will be how regulators define what activities are deemed ‘proprietary’ and thus prohibited, while ensuring that markets remain liquid and deep,” Ryan said in his opening remarks.
“Our focus here is to help Treasury determine what qualifies as proprietary trading, and thus subject to the ban, and what is outside of the prohibition,” Ryan said.
He also listed as a SIFMA priority influencing Dodd-Frank’s ambitious mandates to impose the first federal regulation in history on the over-the-counter derivatives market, and to tag some big financial firms as “systemically significant.”
Under the legislation, “systemically significant” financial giants would be put under tighter Fed oversight, while an “orderly liquidation” process for dismantling non-bank firms in distress would be led by the Federal Deposit Insurance Corp.
Both these aspects of the bill seek to combat the notion that some firms are “too big to fail” and to reduce the need for further taxpayer bailouts like those engineered in 2008 by the Bush administration at the height of the crisis.
SIFMA last week gave regulators its views on criteria to be considered in designating firms as “systemically significant.”
“SIFMA believes that certain qualitative and quantitative factors should be included,” Ryan said, also calling on regulators to “address whether non-bank financial institutions should be designated as systemically significant.”
