It's been three and a half years since President Barack Obama signed into law his signature answer to the Great Recession; the Dodd-Frank Wall Street Reform and Consumer Protection Act. In the new week, federal regulators are set to vote on one of the law's central provisions.
The intent is to bar banks from making big bets on risky financial instruments like leveraged collateralized debt obligations or synthetic currency derivatives. Banks argue some of those trades are hedges against other investments the banks hold. But one bank's hedge is another trader's financial bet. Critics contend banks with protection from the Federal Deposit Insurance Corp. should not be allowed to take risks designed purely for financial gain. The bank gets the reward while taxpayers, potentially, take the risk if the bank's behavior puts depositors money at risk.
Tucked away at the bottom of page 245 of the law is where section 619 begins. The prohibition is simple enough in its language. "A banking entity shall not engage in proprietary trading ..." Of course, the definition and application of the declarative sentence is more complex and convoluted. No fewer than five separate financial regulatory agencies are set to vote Tuesday on what's called the Volcker Rule. The resulting rule could stretch into 800 pages of definitions and descriptions. Perhaps it would be simpler and safer to have banks stick to banking.
Tom Hudson, financial journalist, hosts "The Sunshine Economy" on WLRN-FM in Miami.
, where he is the vice president of news. He is the former co-anchor and managing editor of "Nightly Business Report" on public television.