Experts disagree as to whether the Volcker Rule, which has not been finalized, would have stopped the JPMorgan trades had it been in place. The rule, named for former Federal Reserve Chairman Paul Volcker, would restrict banks’ ability to trade high-risk securities for their own benefit.
A House bill that would have exempted foreign offices of banks from the Volcker Rule had been scheduled for a markup but is now on hold. Other Volcker-related bills will also probably now move to the back burner, said Lisa Donner, executive director of Americans for Financial Reform, one of a handful of groups that has weighed in with regulators on behalf of consumers.
“I don’t think the Senate will have any appetite for moving on these now,” Donner said of Dodd-Frank-related legislation, including two bills that passed with wide bipartisan support in the House. Donner said the JPMorgan episode has been “extremely helpful to [those] making the argument that we’ve made all along, that you can’t trust Wall Street to police itself.”
Banking industry lobbyists said they fear the JPMorgan episode will trigger an overreaction, particularly at agencies such as the SEC and the CFTC, which may respond to pressure to speed up the Dodd-Frank rule-writing process. Business leaders have long argued that improperly written rules will undermine the intent of Dodd-Frank, hamper capital formation and hurt job growth.
“In the regulatory process, there is concern that emotion will take over reason as you look at the details of the rule writing,” said Wayne Abernathy, executive vice president for financial institutions policy at the American Bankers Association.
Banks are also contending with public relations and political crosswinds, acknowledged industry lobbyists. Democrats’ assaults on Wall Street and on Romney’s record at Bain Capital, coupled with lingering popular anger over the 2008 bank bailouts and at what Occupy Wall Street protesters call the 1 percent, all have taken their toll. It doesn’t help that Dimon was defending precisely the type of high-risk, complex trades that got JPMorgan in trouble.
“They are trying to figure out how they can lobby and advocate on issues when they understand that their credibility is eroded as a result of this,” one financial services industry executive said.