Congresswoman Presses Regulators on Volcker Rule Data
A senior Democrat on the House Financial Services Committee is pressing regulators to share two years of market data they have collected in connection with the Volcker Rule, a provision of the Dodd-Frank Act intended to rein in banks’ risky trading and investments.
Representative Carolyn B. Maloney, Democrat of New York, sent a letter to regulators on Monday requesting information about certain quantitative trading metrics that the agencies had been collecting since before regulators prohibited banks from making risky bets with their own money last July.
“The agencies currently have nearly two years of quantitative trading data, spanning periods both before and after the effective date of the proprietary trading ban,” Ms. Maloney said in the letter, which was reviewed by The New York Times. “I believe that these quantitative trading metrics can provide important information not only about the efficacy of the Volcker Rule, but also about the general trading activities of U.S. banks, and the degree to which these trading activities have changed over the past two years.”
Such data could help inform the debate over the rule’s impact as well as broader discussions about how the crisis-era law and other regulations are influencing the financial system.
There are growing questions, for example, about whether there has been a recent reduction in liquidity — the speed with which buyers and sellers can execute large trades — in certain markets, including the market for corporate bonds.
“Data on the inventory turnover, inventory aging, and customer-facing trade ratios in the fixed-income market-making units of the large banks could prove particularly informative in this debate,” Ms. Maloney added in her letter, regarding the discussions over liquidity.
The Volcker Rule, named after former Paul A. Volcker, the former Federal Reserve chairman, has proved to be one of the most closely watched and contentious pieces of the financial regulatory overhaul that followed the financial crisis.
“The industry was largely against it,” said Justin Schardin, director of the financial regulatory reform initiative at the Bipartisan Policy Center. “It has clearly cost a lot in compliance, it may be affecting market liquidity — there’s some debate about that — and the benefits are really hard to figure out.”
“I’m not saying that’s because there are no benefits, but it’s hard to determine what they are and to quantify them” he said. “And it’s not that clear how the agencies are going to enforce this, how tough they’re going to be.”
Parts of the rule continue to be put into place more than six years after the passage of the law, while efforts to eliminate it entirely are still circulating in Congress. This month, reports surfaced that the biggest banks were lobbying for an extension, until 2022, to sell off certain investments outlawed under the rule.
Representative Jeb Hensarling of Texas, the Republican chairman of the House Financial Services Committee, proposed repealing the rule altogether in sweeping legislation he outlined in June.
Ms. Maloney is requesting a host of information related to the granular trading data that regulators have collected, including how bank trading activities changed in the lead-up to the proprietary trading ban in July 2015, whether there are differences in risk-taking across Wall Street banks, how bank examiners are using the data and whether its availability has set off any further review of a bank’s activities.
The letter is addressed to the heads of the five agencies responsible for writing the rule: the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and the Commodity Futures Trading Commission.
She asked for responses by Oct. 30.