Observers who think that the Volcker Rule would have prevented MF Global’s failure are mistaken, according to American Bankers Association CEO Frank Keating.
“In fact, if the rule were in effect today, it wouldn’t have changed MF Global’s fate,” Keating wrote in a recent opinion piece for Bloomberg.com. “That’s because MF Global wasn’t a bank or anything like one. Moreover, even if MF Global had been part of a commercial lender, its regulators never would have allowed the broker-dealer to approach the kind of investment concentration levels that sank the company.”
According to Keating, the Volcker Rule would replace the current safe and sound examinations of banks with a complex set of rules and would turn risk management into a confusing “check-the-box” compliance exercise.
The Volcker Rule is a piece of the Dodd-Frank Act that separates investment banking, private equity and proprietary trading within financial institutions from their consumer lenders.
“Instead of defining what banks can’t do, it defines what they can do,” Keating wrote, according to Bloomberg.com. “This forces bankers to work their way through a labyrinth of rules and definitions to see if their investments qualify for an exception to the ban. In so discouraging such investments, the proposed regulation compromises banks’ ability to support economic growth and job creation.”
Keating wrote that it also limited U.S. banks' ability to compete globally and that international bankers will take over the business that U.S. banks will lose if they are forced to comply with the Volcker Rule.