Paul Volcker Sounds Off on Regulators and the Volcker Rule

Paul Volcker, former chairman of the Federal Reserve under Presidents Carter and Reagan, said the United States has too many financial regulatory bodies, with overlapping functions. Basically, he called it a mess.

Accepting an award for leadership and excellence at a luncheon on Wednesday held by the Economic Club of New York, Volcker was critical of the number of financial regulatory bodies, leading to “neglect and stalemate.”

“It’s clear to me that this regulatory landscape is little changed. We are left with half a dozen regulatory institutions.” Volcker said six regulators were too many and that the right number was at least two and maybe three. He included the Fed and the Federal Deposit Insurance Corp., as necessary.

The number of regulatory bodies policing Wall Street since has grown since the financial crisis of 2008. When planning the Dodd-Frank Wall Street Reform Act, Congress had the opportunity to consolidate regulatory bodies, but it kept the Securities and Exchange Commission and Commodity Future Trading Commission as separate entities. In the wake of concerns about systemic risk and the mortgage fraud, it added the Financial Stability Oversight Council and the Consumer Financial Protection Bureau. Other bodies include the U.S. Comptroller of the Currency and the Federal Deposit Insurance Corp. (FDIC).

Volcker, who has been critical of Wall Street firms during the financial crisis, could the Volcker Rule that would ban proprietary trading by banks that take consumer deposits.

However, the rule has been mired in complexity as banks hired lobbyists to influence the rule writers. “I don’t think it’s complicated. In all these kinds of regulations we are suffering from American disease to have every regulation pinned down exactly,“ said Volcker. He also said that there are people who don’t like it and try to stall it.

From the Wall Street Journal’s Money Beat blog:

The so-called Volcker Rule has been stalled as banks push back against stricter language. The delays are being exacerbated as multiple overlapping financial regulatory agencies all try to figure out their role in the new regulatory environment. “The simple fact is the United States doesn’t need six financial regulatory agencies,” Volcker said in his speech. “It is a recipe for indecision, neglect and stalemate, adding up to ineffectiveness. The time has come for change.”

According to the New York Times, the financial language for the execution of the Volcker Rule may be completed this year, but experts fear it could slip into 2014.

On Wednesday, Volcker announced the formation of Volcker Alliance, a foundation to improve the way that government works. Interestingly, the Volcker Alliance will look to promote training to bank supervisors who will be charged with enforcing the Volcker Rule.