This week marks the end of the public comment period on the Volcker rule. The usual suspects have all delivered their comments. The small advocacy community in favor of the rule sent in their comment through the vehicle of Americans for Financial Reform. The much larger finance lobby delivered their mass of comments, in particular calls for multiple exemptions and waivers. Yet the initial draft of the Volcker rule was practically an exemption masquerading as a rule, so shot through with loopholes that it would generate little more than laughter.
This is the usual power dynamic on rule implementation. You have a very small set of advocacy groups on one side, and multi-million-dollar lobbyists on the other. But on the Volcker rule, a new entrant has taken the field. The group Occupy the SEC, a collection of experts in finance which sprung out of the Occupy Wall Street movement, delivered a 325 page letter to the SEC about the rule. Of the 395 questions asked by federal agencies on the rule, Occupy the SEC answered 244 of them. Occupy the SEC accomplished this by delegating sections of the statute in public meetups to various individuals, facilitating discussion, and then coming together to draft the letter. This is from their statement:
The Agencies involved in the Volcker rulemaking process have an historic opportunity to redress many of the economic wrongs of the past, and create a future that privileges the interests of the many rather than the few. We ask that the Agencies vigorously implement the considerable responsibilities that have been discharged to them by Congress, remain faithful to the statute’s intent and consider the comments contained in this letter.
The Volcker rule would, in theory, place bans on many instances of proprietary trading by banks and non-bank financial institutions. Carl Levin and Jeff Merkley pushed the measure into the final draft of the Dodd-Frank law.
Occupy the SEC member “George Bailey” (I assume it’s a nom de plume) wrote this over at Naked Capitalism:
SIFMA, on behalf of the industry, took over to explain in detail just what it is that Mr. Volcker doesn’t understand in their comment letter. They reiterate their dire warning about the devastating effects on ‘corporate liquidity‘ from the Volcker Rule. Yet surprisingly, no non-financial corporate bond issuers filed any comments to acknowledge or object to this danger [...] The SIFMA comment letter runs to 175 pages. I haven’t read all the other financial company letters, but the ones I’ve skimmed conform to SIFMA’s position.
Of the comment letters received about 90% are from financial institutions, and another 5% are from foreign governments objecting to the priority the US regulators have gifted to US traders in US Government Bonds. The remaining 5% are from ordinary folks, like Mr. Volcker, Occupy the SEC and other public interest groups.
It’s interesting that 95% of the comments reflect the views of the 1%, and the views of the 99% are embodied in the comments of the remaining 5% of commenters.
I’m confident the regulators will recognize that, for all its complexity, the rules are comprehensible and can be refined to serve the public’s demand for control over a runaway financial system.
This is a fantastic example of citizen lobbying, using their expertise to provide a counter-balance to the big money that distorts public policy. With any luck, it will lead to a better outcome for the Volcker rule. And Occupy the SEC is built to last, hanging over the head of the securities regulator. The Obama Administration actually calls for more money in their budget for agencies like the SEC and the CFTC, which will bear the bulk of the regulatory responsibility under Dodd-Frank. But it’s not so much about resources as it is will. And Occupy the SEC can become a great watchdog, making sure everyone knows when the will is lacking.
UPDATE: Felix Salmon gives a strong review to the Occupy the SEC letter. He highlights these introductory comments:
During the legislative process, the Volcker Rule was woefully enfeebled by the addition of numerous loopholes and exceptions. The banking lobby exerted inordinate influence on Congress and succeeded in diluting the statute, despite the catastrophic failures that bank policies have produced and continue to produce…
The Proposed Rule also evinces a remarkable solicitude for the interests of banking corporations over those of investors, consumers, taxpayers and other human beings. In their Overview of the Proposed Rule, ““the Agencies request comment on the potential impacts the proposed approach may have on banking entities and the businesses in which they engage,”” but curiously fail to solicit comment on the potential impact on consumers, depositors, or taxpayers. The Administrative Procedure Act requires that, prior to the enactment of a substantive regulation, an agency must give ““interested persons”” an opportunity to comment. The Agencies seem to have lost sight of the fact that ““interested persons”” could include human beings, and not just banking corporations.