Regulation

BPC report: Well-crafted Volcker Rule could eliminate need for swaps push-out

Bipartisan Policy CenterA recent report from the Bipartisan Policy Center proposed several recommendations intended to help regulators implement the controversial Volcker Rule, saying a well-crafted rule could eliminate the need for the Lincoln Amendment.

The Volcker Rule prohibits banks from engaging in proprietary trading—or risky trading using customer deposits. Named after former Federal Reserve chairman Paul Volcker, the rule, which remains unfinished, was introduced as part of the 2010 Dodd-Frank Act.

Critics of the rule maintain that it is overly complicated and that a well-diversified institution is a safer institution. Proponents, however, maintain that the rule will help to ensure the stability of the U.S. financial system in the event of an economic downturn.

James Cox, one of the report’s authors, said regulators should focus on the activities of financial institutions, not the individual transactions, use a metrics-based, data-driven approach that avoids a one-size-fits-all model and phase-in Volcker Rule regulations to allow for monitoring of each asset class.

Under the plan proposed by the report authors, regulators would use certain metrics geared towards each asset class, market and financial product to determine which kinds of trading should be banned.

Report author Jonathan Macey said that regulators should take a “’wait and see’” approach to the Lincoln Amendment, also known as the “swaps push-out rule,” that prohibits banks that deal in certain derivatives from obtaining federal assistance.

“The task force recommends a different approach to facilitate the implementation of the Volcker Rule and also recommends delaying implementation of the Lincoln Amendment on swaps push-out until more real-world experience is gained with the Volcker Rule, however it is adopted,” the report said.

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