Washington, D.C. – The Capital Markets Task Force, which is part of the Bipartisan Policy Center’s (BPC) Financial Regulatory Reform Initiative, released a new report today that highlights a path forward on the Volcker Rule and the Lincoln Amendment. The report proposes six recommendations to help regulators better implement the Volcker Rule and concludes that a well-crafted Volcker Rule may eliminate the need for the Lincoln Amendment.
Read the full report, A Better Path Forward on the Volcker Rule and the Lincoln Amendment, here.
“As President Obama pushes regulators to complete the Volcker Rule by year’s end, the complexity and lack of clarity of the regulations proposed by the agencies remain a work in progress,” said James Cox, one of the report authors. “We suggest a few central ideas for how regulators should approach their final regulations: focus on activities and not individual transactions; use a data-driven, metrics-based approach that fits specific asset classes and isn’t a one-size-fits-all model; and phase in the implementation of Volcker Rule regulations to monitor each asset class.”
Specifically, the report makes the case for a functional, data-driven and iterative approach to implementing the Volcker Rule. Under the plan proposed by the task force, regulators would use metrics tailored to each asset class, financial product and market to define what kinds of trading should be considered impermissible. It is critical that the new regulations be crafted with nuance, data and real-world experience as the characteristics of markets vary widely, and a poor implementation of the Volcker Rule has the potential to damage consumers, investors, industry and the economy.
“Regulators should focus on collecting a robust set of data about trading transactions and identifying trading patterns at the early stages of implementation,” said former SEC Commissioner Annette Nazareth, who also authored the report.
“Our intent is to make sure we get them right the first time around,” said report author Jonathan Macey. “In doing so, we urge regulators take a ‘wait-and-see’ approach to the Lincoln Amendment that takes account of the experience they gain throughout implementation.”
Regulations should also be phased in with timing most appropriate to each asset class, with regulators fine-tuning regulations over time to account for the experience they gain and for changes in market conditions. Another key recommendation in the report explains how to implement the Volcker Rule on a global scale. The report recommends that regulators treat foreign transactions as permissible unless they are made through an office or subsidiary of a foreign bank in the United States.
The Capital Markets Task Force is co-chaired by Professor James Cox, former SEC Commissioner Annette Nazareth, and Professor Jonathan Macey. This report is the third in a series of white papers written by the initiative analyzing the implementation of the Dodd-Frank Act and suggesting specific recommendations to improve its effectiveness.