February 23, 2012
Dueling Volcker Rule Commentaries
Posted by David Zaring

Both in the Times.  Jesse Eisinger says

bank lobbyists with complicit regulators and legislators took a simple concept and bloated [the Volcker Rule] into a 530-page monstrosity of hopeless complexity and vagueness.

But Steven Davidoff suspects that

The Volcker Rule, for all its good intentions, may perhaps unleash a burst of rapid financial innovation to do something it never intended: recreating the prefinancial crisis division between investment banks and commercial banks.

So is the Volcker Rule going to be toothless or a return to the old days of separated banking?  My money's with Davidoff.  Just because a rule is complicated doesn't mean that it won't work - look at the Clean Water Act.  And all the indicia, literally all of them - that investment banks are losing money, planning layoffs, and spinning off prop trading at the same time - suggest that regulatory reform, rather than being ignored, is substantially affecting the organization of financial intermediaries.

I know some people close to Paul Volcker himself who have despaired of the progress made in implementing the Rule.  But it seems to me that the changes in anticipation of its effect have already been substantial.  I'm not sure that the same progress will be made with derivatives regulation.  But simply adding up the word count of a regulation should be your last resort, rather than your first one.

Administrative Law, Finance, Financial Crisis, Financial Institutions | Bookmark

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