King Arthur and the Volcker Rule
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Most everyone is aware of the tale of King Arthur and the Knights of the Roundtable protecting the realm and following the code of chivalry because even in the Dark Ages the enlightened King Arthur decided that the concept of “might makes right” was wrong and that the rule of law, with the certainty it provides, must prevail.
In the dark, murky, bureaucratic forests of Washington, DC we have our own version of the roundtable. When writing regulations agencies are required to solicit input from the public to ensure that the regulation provides a benefit and not create harm. If the issues are complex or the normal outreach process insufficient, agencies will hold a roundtable to convene a group of stakeholders to talk through the issues and concepts of a draft rule to help educate regulators and clarify their thinking.
I have written before about the inherent difficulties and complexities of the Volcker Rule and the process flaws of the rulemaking process. To recap, the proposed Volcker Rule spans 298 pages, asks over 1,000 questions and will try to create a new regulatory structure empowering 5 different regulatory agencies, with different standards and missions, to subjectively approve or disapprove transactions needed by non-financial businesses to raise the capital necessary to operate, grow and create jobs. Under such a system, corporate treasurers would find an ever shifting system shorn of certainty, with higher cost of capital, and possibly face the unpleasant reality that they may be shut out of some debt and equity markets entirely. In January, Federal Reserve Governor Daniel Tarullo testified before Congress and admitted that the regulators do not understand the normal practices of market-making and underwriting, the means used by non-financial companies to raise capital.
That is why the Chamber has called on the Volcker Rule regulators to hold a roundtable to solicit further input to better understand the markets and functions that they will try and regulate. Commodity and Futures Trading Commission Chairman Gary Gensler, to his credit, is holding such a roundtable today, the first and so far only of the Volcker Rule regulators to do so. Jeff Agosta of Devon Energy and David Robertson of Treasury Strategies will participate in this Roundtable. Click here to read Robertson’s written statement.
Now time will tell if the roundtable will be a sober discussion of the issues and solutions reached or if this will devolve into a political side show devoted to posturing around the recent disclosures of losses by J.P. Morgan Chase. For a regulator to allow this to happen would be unusual. But what is true, seven weeks into the public disclosures of this trade is that regulators, some with inspectors directly embedded into the bank, can’t say if the trades would have fallen into the Volcker Rule or not.
If the regulators can’t make the call on one trade and don’t understand the systems they are trying to regulate, can we really hope for a do no harm version of the Volcker Rule?
Regulatory systems are supposed to provide clear rules of the road and regulators who understand how to navigate through the web of complex regulations they’ve created within their jurisdiction. So far that seems to be a challenge for the Volcker Rule. If the roundtable doesn’t work, maybe Merlin can concoct a potion that will.