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WASHINGTON The American Bankers Association plans to challenge the Volcker Rule in court unless regulators immediately suspend portions of the controversial regulation that restrict certain collateralized debt obligations of trust-preferred securities.
December 23 -
In more than 71 pages, banking and securities regulators detailed precisely how they planned to strike a balance between banning proprietary trading while providing banks with the flexibility to continue to engage in certain market-making activities.
December 10 -
Being persistent and relentlessly reasonable can succeed over expressions of outrage, however justified that may be.
February 12
The Volcker Rule was designed to curb big banks' ability to engage in risky and speculative securities trading activities in an effort to prevent future U.S. government bailouts of financial institutions deemed too big to fail. This rationale disappeared when Congress and regulators expanded the rule to include banks of all sizes. Under the
In our view, regulators responded to a perception that financial oversight was "too cold" in the run-up to the financial crisis by moving to a system that is "too hot" in their efforts to implement Dodd-Frank. Especially with respect to small and midsize banks, the regulatory pendulum has swung too far. Nevertheless, the compliance deadline is looming. We suggest that small and midsize banks take three immediate steps to implement a properly tailored Volcker Rule compliance program that is "just right" for their business objectives and compliance budgets.
First, study the Volcker Rule regulations carefully to understand which provisions actually apply to your institution. For example, a community bank with $5 billion in total assets must comply with the Volcker Rule's proprietary trading and hedge fund ownership restrictions, but is not subject to heightened recordkeeping requirements.
Second, consider whether it is genuinely important to engage in the activities permitted under the Volcker Rule, such as proprietary risk-mitigating hedging activities. Attempting to shoehorn your institution's activities within an exception will necessarily increase legal and compliance costs. If those costs, or the diversion of management resources necessary to comply with the Volcker Rule requirements, outweigh the value of the permitted hedging activities, discontinue them. This will allow you to implement a drastically scaled-back compliance program.
Third, reduce the burden of the Volcker Rule's compliance program mandate whenever possible. For example, if your institution has decided not to engage in any proprietary trading or hedge fund ownership activities, you may be able to satisfy the compliance mandate simply by adding appropriate Volcker Rule references to your existing compliance materials. If your institution does engage in permitted varieties of these activities, consider limiting the number of employees with the authority to do so.
The banking industry and even regulators are increasingly aware of the Volcker Rule's negative impact on smaller institutions. Shortly after the Volcker Rule regulations were issued at the end of last year,
Current reform efforts may eventually lead to more proportional application of the Volcker Rule. In the meantime, small and midsize banks would be ill-advised to take a wait-and-see approach. Instead, they must understand the Volcker Rule and proactively design a compliance program that is consistent with their goals and budgets. The Volcker Rule does not need to be a compliance headache for your institution, but it will be if you do not begin planning now.
