The Daily Caller

The Daily Caller
Federal Reserve Bank of Dallas President Richard Fisher (R) testifies alongside FDIC Vice Chair Thomas Hoenig before the House Financial Services Committee hearing on "Examining How the Dodd-Frank Act Could Result in More Taxpayer-Funded Bailouts" on Capitol Hill in Washington June 26, 2013. REUTERS/Yuri Gripas Federal Reserve Bank of Dallas President Richard Fisher (R) testifies alongside FDIC Vice Chair Thomas Hoenig before the House Financial Services Committee hearing on "Examining How the Dodd-Frank Act Could Result in More Taxpayer-Funded Bailouts" on Capitol Hill in Washington June 26, 2013. REUTERS/Yuri Gripas  

The Volcker Rule is Obamacare for main street banks and their customers

Photo of John Berlau
John Berlau
Senior Fellow, CEI

You might think after the disastrous debut of HealthCare.gov and thousands of insurance cancellations, those who call themselves progressives might just have a little humility about grandiose government schemes with vague terms and objectives.

Not so, at least according to the adulatory greeting by liberal activists and the establishment media of this month’s implementation of a pie-in-the-sky provision of the Dodd-Frank financial “reform,” a law that has often been referred to by experts as the financial equivalent of Obamacare for Main Street banks and their customers

Like Obamacare, Dodd-Frank was a 2,500-plus page law rammed through the Democrat-controlled Congress in 2010. And like the bureaucrat-written rules implementing Obamacare, the regulations implementing the law are pretty lengthy as well.

Joint regulations issued last week to implement Dodd-Frank’s so-called Volcker Rule were almost 1,000 pages, nearly half as long as the law itself. “Changing the Ways of Wall Street” was how a New York Times news piece characterized the rule when it was released last week.

Yet this week, even the NYT was compelled to report on the regulation hitting a bank that was about as far away from Wall Street as once could get. “Volcker Rule Quickly Hits Utah Bank,” reads the headline of an NYT article describing how the Volcker Rule forced Salt Lake City-based Zions Bancorporation to divest a long-held debt security and take a loss of $387 million by doing so.

As Bloomberg notes in its piece on the shocking hit to the bank’s balance sheet, this “cost is more than Zions earned for any calendar year since 2007.” And Zions isn’t the only bank far away from Wall Street feeling the impact of this rule. The head of the Independent Community Bankers of America told Bloomberg Businessweek that more than 300 community banks “are highly likely to take losses in their capital accounts” by New Year’s Day.

In the meantime, the new rules could also reduce sharply the stream of initial public offerings that have been propelling the stock-market upsurge. Just as regulatory impediments to smaller IPOs were relaxed modestly with the bipartisan Jumpstart Our Business Startups (JOBS) Act signed by President Obama last year, the Volcker rule will likely erect new barriers to market making by Main Street banks underwriting the offerings of these smaller firms.

Even as written in the Dodd-Frank financial “reform” statute, the Volcker Rule was a solution in search of a problem, or in search of a factor that was not even a minor cause of the financial crisis. The provision, often referred to a “Glass-Steagall lite” – after the 1930s law that was repealed by President Clinton in 1999 – maintains Glass-Steagall’s false dichotomy of inherently “risky” trading vs. inherently “safe” lending.

And it doesn’t ban or restrict trading based on level of risk, but on whether the trading is ”proprietary.” Most discouragingly, in the statute and in last week’s edict, the Volcker Rule contains explicit exemptions for trading in risky government-backed securities, such as municipal bonds and foreign sovereign debt.