The Federal Reserve Board is expected today to start rolling back the Volcker Rule, a controversial Dodd-Frank provision that prohibits federally insured commercial banks from engaging in certain types of proprietary trading or investing in hedge funds or private equity funds. CEI policy experts say it’s a good first step to helping entrepreneurs and investors, but Congress needs to do its part, too.
CEI senior fellow John Berlau says the Volcker Rule worsened the steep decline in initial public offerings and the absolute number of companies on U.S. stock exchanges, both taking a toll on entrepreneurs and investors:
“The Volcker Rule is another impediment to growing companies going public because it creates uncertainty about banks’ ability to buy shares to engage in ‘market making’ for these firms. If regulators clarify that a bank’s buying of shares to create a market for publicly traded firms is exempt from the law’s ban on ‘proprietary trading,’ that would help entrepreneurs access capital and middle-class investors access wealth.”
CEI policy analyst Daniel Press cautions that regulators are limited in providing relief from the law, so Congress must still repeal the Volcker Rule and eliminate government guarantees that shift banks’ risks to taxpayers.
“The Trump administration's intention to reform the Volcker Rule is a good first step in correcting one of the Dodd-Frank Act's worst provisions. The rule was designed to tackle the perceived risk of "proprietary trading" of Wall Street banks, but instead the rule has made the financial system less safe by impacting market liquidity and access to credit.”
Related report, The Case Against the Volcker