Goldman Sachs Group Inc. has been brawling with regulators over the Volcker Rule for years. And it’s still fighting even though officials appointed by President Donald Trump are now working to soften the landmark constraint on banks.
Goldman said a revamp that regulators proposed earlier this year falls far short of what’s needed to ease undue burdens on Wall Street. Among the gripes it laid out in an Oct. 17 letter to federal agencies: the overhaul might make it even harder for banks to trade and it remains too restrictive in curtailing lenders’ investments in hedge funds and private-equity firms.
A key response by lawmakers to the 2008 financial crisis, the Volcker Rule was included in the Dodd-Frank Act as a way to reduce risk-taking by banning banks from making market bets with their own capital.
Wall Street complained ever before the regulation’s 2013 implementation that it’s unnecessarily complex, almost impossible to adhere to and that it prevents banks from executing appropriate trades for clients. Trump-picked regulators, who are receptive to those concerns, proposed a revised version in May. For months, the Federal Reserve and other agencies have been soliciting feedback on the revamp.
The deadline for submitting responses passed last week. Goldman said it contributed to comments written by five different bank trade groups. But unlike competitors, including Morgan Stanley, JPMorgan Chase & Co. and Citigroup Inc., Goldman also wrote its own letter. One explanation for Goldman’s special interest in seeing the Volcker Rule lose some of its bite: the firm’s outsize focus on trading.
Goldman spokesman Andrew Williams declined to comment.
One of banks’ biggest grievances about the original Volcker Rule is that trades held for fewer than 60 days are presumed to violate the regulation. Regulators tried to fix things earlier this year by proposing that the 60-day test be replaced with a new standard linked to accounting rules. Specifically, banks would be barred from trading anything that fits within an accounting category that ties the value of securities to market prices.
Goldman joined the broader industry in ripping the plan, calling it “highly problematic” because it risks roping in a lot more transactions than are covered by the existing Volcker Rule. Regulators have already signaled they’re open to making changes to their proposal, with top officials saying it wasn’t their intent to broaden the scope of the trading ban.
In its letter, signed by Chief of Staff John F. W. Rogers, Goldman also criticized Volcker Rule limits on investing in hedge funds and private equity. Such restrictions make it extremely difficult for banks to run investment funds because few clients are willing to invest with a money manager who lacks “skin in the game,” Rogers wrote.
Consumer groups also criticized regulators’ attempt to overhaul the Volcker Rule, but for much different reasons. “We believe the effort to dilute the Volcker Rule is dangerously misguided,” advocacy group Public Citizen wrote in a letter.
Regulators also received more than 1,600 form emails that said it’s unacceptable to cut regulations for banks while the U.S. is still recovering “==from the damage that they caused by sparking the 2008 crash.”
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