Fed Delays Volcker Rule, Giving Wall Street Another Holiday Gift - HuffPo [View all]

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Fed Delays Volcker Rule, Giving Wall Street Another Holiday Gift
Zach Carter - HuffPo
Posted: 12/18/2014 6:36 pm EST Updated: 12/18/2014 8:59 pm EST

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WASHINGTON -- Christmas came early for Wall Street this year. The Federal Reserve on Thursday granted banks an extra year to comply with a key provision of the Volcker Rule, a move that gives financial lobbyists more time to kill the new regulation before it goes into effect.

The Volcker Rule is a key element of the 2010 Dodd-Frank financial reform law that bans banks from engaging in proprietary trading -- speculative deals that are designed only to benefit the bank itself, rather than its clients. Thursday's move by the Fed gives banks an additional year to unwind investments in private equity firms, hedge funds and specialty securities projects. The central bank also said it plans to extend the deadline by another 12 months next year, which would give Wall Street a two-year reprieve through the 2016 presidential election.

The Fed's delay comes less than a week after Congress granted Wall Street a reprieve from another reform that had been mandated by the 2010 Dodd-Frank financial reform law. The measure, known as the swaps push-out rule had eliminated federal subsidies for trading in risky derivatives -- the complex contracts at the heart of the 2008 banking meltdown. Bank watchdogs say the Volcker Rule delay adds insult to injury.

"Swaps pushout was a club," said Marcus Stanley, policy director for Americans for Financial Reform. "This is a stiletto."

Big banks including Goldman Sachs and Morgan Stanley have billions of dollars invested in private equity firms that they would have to sell at a loss based on current prices, according to a Bloomberg report from early December. Dodd-Frank gave banks four years to unwind their investments in speculative enterprises, setting a deadline of July 21, 2014. The Fed had previously extended that deadline by one year, and now plans to push it out to July 2017.

"The Street has had years of notice to unwind these investments, and it appears that their self-serving complaints have been accepted fairly uncritically without a real analysis for the basis of the claim," said Dennis Kelleher, president and CEO of Better Markets, a financial reform advocacy group. "If you can't get out of a trade in seven years, it's probably not the kind of trade you should be doing."

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More: http://www.huffingtonpost.com/2014/12/18/volcker-rule-federal-reserve_n_6351190.html