Banking lobbyists are going to be getting big big bonus checks this Christmas, as 2014 has been a banner year for legislative breaks and regulatory rollbacks for the financial services industry. In the latest in a series of wins in Washington D.C., the Federal Reserve announced on Thursday that it was delaying implementation of the Volcker Rule. The Fed’s decision means that big banks can hold onto billions of dollars in private-equity and hedge-fund investments for two more years.
Fed delays Volcker Rule to give big banks more time to liquidate stakes
The Fed agreed to grant the extension after banks argued selling their stakes so quickly could force them to accept discount prices.
Moving the Volcker Rule deadline out until July 2017 will let banks get out of their investments “in an orderly manner,” the Fed noted in an order published Friday. The step will “reduce the potential disruptive effects that significant divestitures of covered funds could have on markets,” the central bank explained.
The Fed is planning to grant consecutive single-year extensions, as authorized by the Dodd-Frank Act.
Statement from Paul Volcker
The Volcker Rule was named after former Fed Chairman Paul Volcker, and was designed to prevent banks from using their own funds to make risky bets.
“It is striking, that the world’s leading investment bankers, noted for their cleverness and agility in advising clients on how to restructure companies and even industries however complicated, apparently can’t manage the orderly reorganization of their own activities in more than five years,” Paul Volcker noted in an e-mailed statement after the Fed’s announcement. “Or, do I understand that lobbying is eternal, and by 2017 or beyond, the expectation can be fostered that the law itself can be changed?”
Banks reluctant to give up good returns
Strong investment returns over the last year or two are another reason why banks want to hold onto their private-equity stakes, as the value of their holdings has moved up smartly.
“The Wall Street Casino is alive and well,” Senator Jeff Merkley from Oregon, said in a statement following the Fed’s decision. “This is wrong for taxpayers and it is wrong for the stability of our banking system. We expect more of the Federal Reserve.”