The Volker Rule was
meant to bar financial institutions that are protected and subsidized by the federal government from trading for their own accounts. That is, it’s pretty simple: Traders shouldn’t speculate for their own personal gain using the money you and I pay in taxes. Yet bank lobbyists with complicit regulators and legislators took a simple concept and bloated it into a 530-page monstrosity of hopeless complexity and vagueness. (see here)
And why not? I'd love to use someone else's money to speculate with. I'd get to keep the gain and you would bear the loss.
I think that the Volker Rule was a quick response to the risk-taking behavior by banks. I don't believe that the framework was well articulated. While the Volker Rule prohibits banks from participating in proprietary trading, banks are finding ways around this as they continue to engage in proprietary-esce trading. Even if the Volker Rule can be more explicit in its regulations, I believe banks will find other ways to speculate with peoples' money. Perhaps, regulators should look at bank speculative activities in terms of risk management. Regulators may be able to impose limits on exposure or set a limit in terms of a quantified level of risk. In general, I'm pessimistic about regulators' ability to ban all types of bank proprietary trading so I think they should pursue other methods to limit risk-taking behavior among banks.
ReplyDeleteI am also pessimistic about the regulators and there ability to stop bank proprietary trading. I agree with Ryan that they need to find new ways to limit the risk-taking behavior among banks.
ReplyDeleteI think Ryan brings up some great points. There must be a reform to come up with a better system to regulate risk taking among banks, right now they get to keep the gain without bearing any loss.
ReplyDeleteI think that people are still discouraged by the financial issues that caused financial crisis, and thus the Volker Rule was put into place. The fact is people are still critical of the banks for attempting to use proprietary trading while utilizing the subsidies from the government, and I'm not sure they are wrong in being suspicious. As said above, that means that they are using tax payer's money to speculate and make money for themselves, thus they have less consequences, and that's why the rule is attempting to limit that. I think we need to attempt to keep regulations in place to limit risky behavior from banks that we've already had to bail out, but I'm not sure that will happen well enough to stop them.
ReplyDeleteIf I could speculate with someone else's money and keep the earning I would absolutely do it. But because of this I also think there needs to be some reform to put reins on institutions that receive government money.
ReplyDeleteI agree with Nick. I think there needs to be some control on institutions that receive government money because if they are trading with others' money there's no risk for them. They don't experience the loss that they should if trades were to go bad.
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