House Republicans, Backed by 78 Democrats, Just Voted to Roll Back This Central Provision of Dodd-Frank

On Thursday, the US House of Representatives passed two bills to roll back important financial regulations. Yesterday, they continued with a third.

This new bill was the Volcker Rule Regulatory Harmonization Act, which would undermine the implementation of the Volcker Rule, a key provision of Dodd-Frank, by giving sole rulemaking authority for the rule to the Federal Reserve (taking more assertive agencies like the Federal Deposit Insurance Corporation out of the process), and by entirely exempting banks under $10 billion from restrictions on proprietary trading.

Here’s a helpful reminder of what the Volcker Rule does from Americans for Financial Reform:

The Volcker Rule was passed in response to the experience of the 2008 financial crisis. In 2007–2008 big banks experienced hundreds of billions of dollars in unexpected losses due to markdowns of securities held for proprietary trading purposes. Bank relationships with external funds and securitization vehicles — such as the credit hedge funds that triggered the failure of Bear Stearns and the bank-originated “toxic” mortgage securitizations that helped crash the economy — also played an enormous role in the crisis. After evaluating this experience, Congress acted to ban banking organizations within the public safety net from proprietary speculation on trading markets, restricting them to forms of trading designed to serve customer needs, such as market making and underwriting. The Volcker Rule also prevents banks from owning or investing in external funds that could engage in activities similar to proprietary trading.

Large trading banks like Goldman Sachs and JP Morgan have been pushing for the rollback of the Volcker Rule and would be happy to see regulation centered in the bank-friendly Federal Reserve.

Moreover, the exemption for community banks risks creating a growing loophole:

While the great majority of community banks do not engage in proprietary trading, it simply does not make sense to say that community banks may trade for their own account with publicly insured deposits while larger banks may not. As FDIC Vice-Chair Thomas Hoenig has said in opposing this policy change, “I think this would be a loophole. It does open a door, if you are oriented to use deposits to speculate.” Instead of an exemption, smaller banks should be granted a rebuttable presumption that they are not proprietary trading — an assumption that they do not require a bureaucratic compliance regime for the rule, but one which could be overturned if regulators found evidence that the bank was actually proprietary trading. This would get rid of any compliance process, but prevent the use of an exemption as a loophole.

The bill passed 300 to 104. 78 Democrats joined Republicans in voting for it, and Walter Jones (NC-03) was the only Republican to vote against it.

Here are the 78 Democrats: