WASHINGTON — On top of the many criticisms already thrown at the proprietary trading ban in the Dodd-Frank Act, Republican Sen. Bob Corker offered a new one Tuesday.
In a speech to the Chamber of Commerce, the Senate Banking Committee member essentially called authors of the measure hypocrites for curbing banks' trading activities, yet not including government securities in the ban. Under the exemption spelled out in the reform law, banks will still be allowed to do proprietary trading of Treasury bonds and bonds issued by Fannie Mae and Freddie Mac.
"This is the most telling part of what happened, because again this was in my opinion nothing but a political move. And obviously the Fed and Treasury wanted to make sure that they exempted the things that they cared most about," said Corker, a Tennessee Republican.
The ban — first proposed by former Federal Reserve Board Chairman Paul Volcker — restricts what banks can do with their own trading accounts, and limits banks' affiliations with private-equity and hedge funds. Yet the law instructs regulators implementing the rules to include certain exemptions for market-making and other activities they view as legitimate.
In October, federal bank regulators released a complex 300-page proposal to implement what is known as the Volcker Rule. But the agencies, which included hundreds of questions for comment, have been criticized on all sides for the draft. Some say they left the door too open for banks to find loopholes to the ban, while others say the draft could be interpreted to ban further activities never meant to be covered by the law.
Corker suggested officials at the Treasury Department and the Fed understood the potential effects of the ban on bond-market liquidity, and that is why they exempted government securities.
"They deal with market makers every day. They know that the line between proprietary trading and market making is impossible to identify," Corker said. "And they know that blunt approaches would damage liquidity, so they had themselves carved out."
Later, in the question-and-answer session, he added, "So our country won't be paying higher interest rates through Treasuries, but everyone else will. It points to the tremendous hypocrisy in this bill."
While supporters of the provision say industry estimates of the measure's effects on financial institutions are overstated, Corker described the Volcker Rule as a poorly-thought out and hastily-drafted addition to Dodd-Frank.
"It embodies political populism and the attitude that the right thing to do is to stick it to the banks," he said.