Bank lobbyists and those that support them in Congress reportedly are making a last-minute push to topple the "Volcker Rule," a major underpinning in the financial-reform legislation now under consideration.
The rule would prevent FDIC-insured banks from using depositors’ money to make risky wagers on the market, and would force them to sell off hedge funds and private-equity units.
“Wall Street has always been very skilled at getting around rules, and this law will be no exception,” Frank Partnoy, a professor of law at the University of San Diego and a former trader at Morgan Stanley, told the New York Times.
“Once you open up the door just a crack, Wall Street shoves the door open and runs right through it.”
To secure the support needed for their bill, Senate negotiators are leaning toward exempting some transactions from the Volcker Rule and permit banks to continue running such businesses as investment funds that hold only client money, several Congressional aides, industry officials and lawyers told the Times.
The main changes being considered would exclude-asset management and insurance companies outright, which would allow banks to continue to invest in hedge funds and private-equity firms, and giving banks seven years to enact the changes.
If passed, these exemptions would help big investment banks and money-management firms to keep their hedge-fund and private-equity arms instead of having to divest from them.
Former Fed chair Paul Volcker is presently in Washington trying to safeguard the rule he has championed.
Even though the spirit of the Volcker Rule is to prevent banks endangering customers’ accounts by investing in risky endeavors, that end wouldn't be harmed through these exemptions, according to the Atlantic, which says that the financial companies would be able to continue to engage in trading activities using clients' money.
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