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Own worst enemies

12 August 2016 By Antony Currie

Wall Street’s procrastination only gives opponents another reason to act. Goldman Sachs, JPMorgan, Morgan Stanley and other banks want the Federal Reserve to give them until 2022 to offload investments banned by the Volcker Rule. They have already had six years to do so, during which time the stock market has doubled. Asking for such a long delay may lead to unwanted consequences.

The request may have its merits. Many of the holdings are harder to get rid of than run-of-the-mill stocks and bonds. They also may be subject to contractual obligations that limit how and when they can be sold. And there’s a chance that next summer’s deadline might force banks to accept discounted prices.

That’s a concern for shareholders, however, not regulators. The $7 billion of affected investments at Goldman and the $3.2 billion at Morgan Stanley would hurt earnings if sold at a loss, but shouldn’t put a strain on capital.

The broader issue is that banks have had plenty of time to get their houses in order. The Volcker Rule was part of the 2010 Dodd-Frank legislation aimed at reducing risks banks pose to the financial system. Although it did not take effect for another few years, most institutions quickly closed other affected units, such as proprietary trading.

Further delays will come off as banks again trying to avoid rules and oversight. They already have the likes of Senators Elizabeth Warren and Bernie Sanders pushing for breakups and both political parties talking about reinstating the Depression-era Glass-Steagall law that separated commercial and investment banking. By dragging their feet on the Volcker Rule, bankers may give those initiatives momentum.


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