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WASHINGTON Dialing back the Volcker Rule that
limits banks’ ability to engage in speculative investments is a
top priority for President Donald Trump’s nominee for U.S.
Treasury secretary, Steve Mnuchin, according to a document seen
by Reuters on Monday.
In written responses to questions posed by members of the
U.S. Senate Finance Committee, Mnuchin said he would use his
role as head of the interagency Financial Stability Oversight
Council to give the Volcker Rule a stricter definition of
In “prop trading” a financial firm uses its own money to
invest in privately held companies, hedge funds and similar
vehicles. The Volcker rule was designed to limit the type of
risk-taking activities that helped land banks in trouble during
the financial crisis.
“As Chair of FSOC I would plan to address the issue of the
definition of the Volcker Rule to make sure that banks can
provide the necessary liquidity for customer markets and address
the issues in the Fed report,” Mnuchin wrote in the document,
which also included senators’ questions and was verified by a
During his confirmation hearing with the Senate Finance
Committee last week, Mnuchin cited a recent Federal Reserve
report that found the rule, part of the 2010 Dodd-Frank Wall
Street Reform law, was limiting market liquidity. The committee
has not yet scheduled a date to vote to send the nomination to
the full chamber for approval.
Regulators have applied proprietary trading prohibitions to
too many activities, he said.
The Fed report found that ambiguity and gray areas in the
rule were pushing dealers to conservative strategies to ensure
they did not cross the line on the prohibitions.
In the responses Mnuchin also made it clear he believes the rule should only apply to “a bank that benefits from federal
deposit insurance.” The Federal Deposit Insurance Corporation
guarantees retail deposits at about 6,000 banks, including the
consumer banking arms of the country’s largest investment banks.
The law currently applies to banks that have access to the
Federal Reserve’s discount window or other government backstop.
Senator Maria Cantwell, a Democrat who serves on the Finance
Committee, wrote that uninsured investment banks also pose risks
that the rule, named for former Federal Reserve Chair Paul
Volcker, was supposed to address.
“As we saw during the financial crisis, when nonbanking
affiliates of FDIC insured banks failed, they were rescued by
their insured affiliates, which in turn were forced to be
rescued by taxpayers,” she wrote. “This was the case with State
Street Bank, and your former employer, Goldman Sachs, which
converted to a bank holding company in order to be eligible for
federal bailout funds.”
Mnuchin reiterated that an updated version of the 1933
Glass-Steagall law that had long separated commercial and
investment banking should be instated to reduce risks. The law
was repealed in 1999.
Mnuchin has not shared details of his “21st Century
Glass-Steagall,” but hinted it would be looser than the
“A bright line between commercial and investment banking,
although less complicated, may inhibit the necessary lending and
capital markets activities to support a robust economy,” he
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