Occupy the SEC on the Volcker Rule
From Felix Salmon at Reuters on the Occupy letter to the SEC:
As the letter says, “an unfortunate consequence of the generalized language throughout the Proposed Rule may be the shift of risky practices out of liquid and transparent markets into the less regulated illiquid and OTC products” — there’s a real risk, here, that the Volcker rule could actually make bank trading more risky, rather than less.
The letter also picks up on the Volcker Rule’s proposed treatment of carried interest. As we all know from following the Romney campaign, carried interest is treated as capital gains for income tax purposes. But in the Volcker Rule, it’s treated as fee earnings. As the letter says, “carried interest should not provide loopholes to banking entities and to covered funds in both the realm of taxation and the realm of regulation”. Carried interest is income, yes, but it’s also an ownership stake — but under the proposed rule, it’s exempt from the definition of “ownership interest”. Which seems silly.
The Volcker Rule is a specific section of the Dodd–Frank Wall Street Reform and Consumer Protection Act originally proposed by American economist and former United States Federal Reserve Chairman Paul Volcker to restrict United States banks from making certain kinds of speculative investments that do not benefit their customers. Volcker argued that such speculative activity played a key role in the financial crisis of 2007–2010. The rule is often referred to as a ban on proprietary trading by commercial banks, whereby deposits are used to trade on the bank’s personal accounts, although a number of exceptions to this ban were included in the Dodd-Frank law. The rule’s provisions are scheduled to be implemented as a part of Dodd-Frank on July 21, 2012.