Paul Volcker is an American economist who was the chairman of the Federal Reserve, under Presidents Jimmy Carter and Ronald Reagan. He is still working though, and is still making recommendations that could forever change the American banking scene.
The P4Capital team investigates.
Amanda: Change is never easy – but sometimes it is necessary. In this week’s round table discussion the P4Capital executive team talks about former chairman of the Federal Reserve, Paul Volcker, and changes he is recommending be made to US banking.
Jim: Today’s topic, or this week’s topic, is about Paul Volcker’s recommendation to put US banking and financial industry under one roof.
Shaheerah: Yes, he has outlined a new plan for revamping the way that the US government is going to oversee their financial plans. And he’s going to be publishing a paper soon which is going to talk about consolidating and reorganizing the US financial regulators, so what they’re going to do is create one single agency to supervise the financial institutions, while the Federal Reserve will be responsible for writing these regulations.
Archana: Paul Volcker is not new to devising strategies. When he was the Chairman of the Federal Reserve he actually was the person who in fact tamed inflation at that time. More recently, he also came up with the Dodd Frank initiative itself, where we wanted banks to engage less and less in risky, Wall Street style trading, and I guess this Volcker Alliance, which terms itself as a think tank, was basically set up to improve the way government essentially works at the local state and the federal level in terms of policy making and the financial decision-making.
Jim: With that said is, the current system in the US has a heavy regulation feel to it. The institutions that play in the US are now pushing back at a fairly aggressive rate, of saying “My business is my business. My business is not supporting your regulation.” In fact, the US has leaned heavily on the regulators side over the last seven years since 2008. Some of the legislation is badly needed, but some is over the top and more importantly, in Volcker’s words, is “why is the futures exchange being regulated by the Ministry of Agriculture?”
Shaheerah: This new plan is that the Fed would write the regulations, and then another agency would make sure that these rules and regulations were actually being followed. So this would be a combination of the Federal Deposit Insurance Corporation, the office of the controller of the currency, the Fed and then the other regulators such as the SEC and the CTFC. Paul Volcker was also responsible for proposing the Volcker rule, and the role prohibits short-term proprietary trading that Archana was talking about, of the securities of the securities, derivatives, commodity futures and options on these instruments on their banks’ own accounts. Basically this rule is to prohibit activities that don’t benefit the banks’ customers.
Jim: But in fact benefit the banks themselves, as long as they introduce the element of low to very high risk. Correct Shaheerah?
Shaheerah: Yup. And it was estimated that the banks would have to hire 3000 new employees in order to implement these rules, and another study had already mentioned that it would actually cost 350 million dollars for the banks and the investors in order to implement this rule.
Jim: So a billion dollar overhead put onto the banks by and large by the representatives that may or may not have their voters’ best interests at heart. It’s an interesting conundrum. We are hoping Paul Volcker wins this one.
Archana: So by the way, while we’re on this topic of regulations and compliance, we at P4Capital – we specialize in these kinds of jobs. So if you’re a person, or a capital markets professional with specialization in this area, or any other capital markets area, please do not hesitate to either give us a call or to send us your resume. We absolutely look forward to hearing from you. And that number by the way that we can be reached at is (416)363-9888. And you can either ask for Shaheerah Kayani or Archana Ravinder.
Jim: And the interesting part of what Archana just mentioned there, is not only are we at P4Capital dedicated to this space, we also understand the heavy impact that new legislation, new rules, new governing bodies have on the overall industry, and the complexity of big data coming onto the market from a global sense. So when we look at Chairman Volcker’s think tank recommendation, we understand the very many sides that he is speaking from. Not only from a centralized regulatory body, but the impact on big data, the impact on being able to do very fast high frequency trading, and be extremely competitive in the world.
That was the P4Capital team discussing the Volcker Recommendations, and the impact they could potentially have on banks. What to know more? Check out our website and previous posts at www.planet4it.com or follow us @p4capital. Thanks and see you next time.