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Mnuchin offers Volcker rule fix ... Treasury Secretary Steven Mnuchin has begun sketching how to define compliance with the Volcker rule.
Treasury Secretary Steven Mnuchin has begun sketching how to define compliance with the Dodd-Frank Act’s so-called Volcker rule to prevent proprietary trading at banks.
“If you are acting within the context of customer business, there is clarity that banks can commit customer capital” without violating the rule, he told attendees at the Institute of International Finance’s Washington Policy Summit on April 20.
Mnuchin pushed for simplification of the Volcker rule’s language through a regulatory rewrite. Meanwhile, the House Financial Services Committee may vote to repeal Volcker entirely, leaving banks free to engage in proprietary trading, which Mnuchin said he was against.
Mnuchin addressed how a bank could find itself on the wrong side of Volcker should regulators under President Donald Trump’s administration redraw the line. “We all know that if you and I are sitting in a room with two Bloombergs and telephones and that’s all we do, that’s proprietary trading,” Mnuchin said. He contrasted that hypothetical situation with a business that conducts and facilitates customer trades — a permissible function under the rule that provides liquidity to the market, according to Mnuchin.
The ability of banks to supply liquidity is important to bond funds. If further interest rate hikes lead to bond market pressure and the banks do not buy, bond funds may find themselves under pressure to support the market.
The House Financial Services Committee held a hearing on a new version of Chair Jeb Hensarling’s (R-Tex) Financial CHOICE Act, a bill that would repeal the Volcker rule and make other sweeping changes to the financial regulatory system. But because any bill passing the Senate must secure eight Democratic votes, some industry circles speculate that nothing like the Hensarling bill will pass in this Congress due to its unpopularity with Democrats.
What regulatory change the Trump era may bring could come from the other end of Pennsylvania Avenue. At the IIF gathering, Mnuchin elaborated on how the Treasury and other financial regulators were acting through the Financial Stability Oversight Council to reach out to banks and non-banks to gather information, yielding a series of 16 meetings with up to 100 people in the room.
“We’re taking all that information in,” he said, adding that it would feed into plans the president would later act on through executive orders. Other parts of the initiative’s findings would be up to regulators to act upon, while others would require legislation, the secretary said.
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