Further efforts at reforming Volcker Rule fall flat

Though many adjustments to the Volcker Rule have been implemented – the new regulation that places restrictions on the type of investments buy-side financial institutions can make – a lot of work has been undertaken behind the scenes to make compliance management easier for executives. However, these efforts haven’t resulted in much, according to a new report from The Wall Street Journal.

The paper noted that in the past several weeks, banking executives have attempted to convince regulators that further relief is required in the banking sector as it pertains to the Volcker Rule. They indicated that easing is necessary in order to make it easier to provide loans to companies that request them.

Thus far, however, the requests have largely fallen on deaf ears.

The main reason why regulators haven’t bent any further, according to the WSJ, may have something to do with the Volcker Rule only affecting large banks, thus a small component of the economy.

CLO health remains in jeopardy
The biggest bone of contention bankers have is with collateralized loan obligations. Those who want the Volcker Rule to be less restrictive say that the current construct will make CLOs less profitable. But defenders of the rule say that by doing so, it could lead to another financial crisis.

Meanwhile, banking institutions have countered this assertion, noting that because CLOs are only handled by large banking entities – which regulators know represent a small sample of the banking industry – additional refinement of the rule doesn’t risk the economy’s overall health.

Paul Kupiec of the conservative think tank the American Enterprise Institute noted in Congressional testimony that the benefits of immunizing CLOs from the Volcker Rule outweigh the potential risks of keeping it as-is.

Volcker Rule lacks clarity, some say
It remains unclear what, if anything, more will be done to further refine the Volcker Rule. Some have suggested that the regulation needs a complete overhaul because it lacks transparency.

“As it stands, there is still not a clear road map on how to implement and interpret the Volcker Rule,” said Ken Bentsen, president and CEO of the Securities Industry and Financial Market Association, in an op-ed piece for The Hill. “There may be several, diverging compliance paths depending on which regulator you ask; and with no clear leader, who will make the final call?”

He added that a coordinator should be appointed to oversee the Volcker Rule, ideally the Financial Stability Oversight Council. The market expert asserted that Congress should also be more intricately involved with oversight duties.

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