Why we need the Volcker rule

James B. Stewart

The New York Times

You know there’s a problem when not even Paul Volcker likes the Volcker rule, said James B. Stewart. The former Fed chairman’s initial three-page proposal outlining how to “curb risk-taking by banks” has swelled in the hands of lobbyists and lawmakers to an incredibly dense 298 pages. Wall Street firms claim the behemoth bill is now “too complex to understand and too costly to adopt,” even though they’re the ones who spent “countless millions of dollars” lobbying to water it down.

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Having read just five pages “before sinking in a sea of acronyms,” I can tell you the banks are right. And that’s a shame, because the Volcker rule “could be the most important reform measure to emerge from the financial crisis.” To see why we need it, look no further than the Citigroup settlement last week for its “brazenly fraudulent” banking behavior.

Now that the Volcker rule has been so hopelessly diluted, the best way to police risk may be to break up too-big-to-fail banks into separate commercial and investment units. Though no panacea, that “would be a start” toward avoiding another crisis.