Tuesday, September 18, 2012

No Turning Back on Volcker Rule and Dodd-Frank Implementation Says Treasury Senior Official

Federal regulators are committed to the implementation of the Dodd-Frank Act, said Treasury Under Secretary for Domestic Finance Mary Miller in remarks to the American Banker Regulatory Symposium. The Volcker regulations are important, emphasized the official, but also complex because reality is complicated.  The intent of the Volcker Rule is clear: prevent banks from making speculative bets that put customer deposits at risk and potentially expose taxpayers to losses. But then, five regulators proposed a joint rule and 18,000 comment letters arrived addressing all kinds of issues and concerns. As it turns out, noted the official, the devil is in the details.

It is hard to write a very detailed rule that would address every concern that federal regulators are hearing, she said, but it is even harder to write a simple rule that is conceptually clear to handle the nuances of a complex financial system. She promised that regulators would strive for simplicity with Volcker and the other reforms they are implementing.  At the same time, regulators are mindful of the need to have smart rules that are responsive to the unique needs of the financial system and promote economic growth. 
At the same time, Dodd-Frank also provides that large financial institutions must hold more and higher-quality capital and maintain larger liquidity buffers. We want these firms to be less likely to fail and help them withstand financial stress.  These higher standards will force large institutions to operate within a framework that reduces systemic risk and will result in an effective governor on size. Community banks, which do not pose the same type of risks to the system, will not be subject to the same obligations. The Dodd-Frank Act provides regulators the tools needed to wind down, break apart, and liquidate large financial companies. With these new tools, said the official, culpable management will be replaced, creditors will suffer losses, and shareholders will be wiped out.  And large financial institutions, not smaller banks or taxpayers, will rightfully pay any costs associated with the wind down.

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