Final Thoughts on Volckerfest 2010
The coming months will tell if the Volcker Rule and the prohibition on banks getting even larger will turn out to be substance or mere spin. I’m finally getting around to reading the transcript of the pre-announcement media briefing and I found a few things that were worth a smile.
1. On the cap on a single institution’s share of liabilities: “The 10 percent cap on insured deposits exists in current law. It was put in place in 1994. And what we’re saying is that deposit cap has served or country well.” Um, then why did you waive it for JPMorgan Chase, Bank of America, and Wells Fargo?
2. Then here’s the bit on how it’s forward-looking only:
“It’s designed to make sure that we don’t end up with a system that some other countries have in the world, in which there’s enormous concentration in their financial sector. So it’s designed to constrain future growth. It’s not about reducing liabilities within — the share within the existing structure.”
End up with? The big four have 1/2 of the market for mortgages and 2/3 of the market for credit cards. Five banks have over 95% of the market for OTC derivatives. Three U.S. banks have over 40% of the global market for stock underwriting.
“It’s designed to constrain future growth so that we don’t have the extent of concentration you see in many other major advanced countries in the world that were — resulted in way more devastating damage to those countries during the financial crisis even than occurred here in the United States.”
Who are these other mysterious “major advanced countries”? United Kingdom unemployment is 7.8%, up from 5.2% in December 2007 (when our recession began). Unemployment in Switzerland is 4.4%, up from 2.8% in December 2007. Unemployment in Germany is 8.2%, down from 8.3% in December 2007. What countries exactly are they talking about? Iceland?
3. “Q I’m wondering why these proposals were not included in the comprehensive legislation you proposed in June.”
“The basic authority is provided in Chairman Frank’s legislation, for regulators to break apart major financial firms or to address problems with risky activities to the extent that they cause the firm to act in an unsafe or unsound manner that threatens the financial system. So we worked very closely with Chairman Frank on that already.”
Not exactly. The “basic authority” referred to must be the Kanjorski Amendment, which allows regulators to take action regarding a specific firm because it is a danger to the system (not just because it is a danger to itself). I don’t recall the Kanjorski Amendment being in Treasury’s initial regulatory proposal. (The Kanjorski Amendment is also hemmed in with all sorts of restrictions, like needing Tim Geithner’s approval for any action affecting more than $10 billion in assets.)
Or, more precisely, the answer is technically correct–they are claiming that they worked with Frank on the Kanjorksi Amendment, which may be true–but it dodges the spirit of the initial question, which was “Why didn’t you do this back in June?”
I know that administration officials have a tough job when they have to go out and spin new policies that (a) are significant changes from past policies and (b) may turn out not to be serious anyway. But that doesn’t mean I have to give them a pass.
By James Kwak