Concern is growing in the U.S. on the possible effects of regulatory revisions by banks on the economy of the country. The regulatory revisions which are supposed to come into force from January 1, 2020 will enable banks to indulge in the more profitable but riskier proprietary trading which had eventually led to the 2007–2008 financial crash.
The revisions are supposed to be made to the Volcker Rule which had otherwise put curbs on the speculative trading activities of banks in order to eliminate possibilities of future bailouts. The Volcker Rule was made a mandatory section of the 2010 Dodd-Frank Act in 2015. The revisions which are being supported by Comptroller of the Currency and the FIDC allow smaller banks to be totally exempted from its stipulations and offer bigger banks more freedom to engage in speculative activities.
Under the revisions, around 46% of banks’ financial instruments would be exempted from the Volcker Rule while around 25% of the holding company’s financial instruments would be exempted from the currently imposed bar on proprietary trading. The exemptions would encourage banks to indulge in speculative actions using depositor money which would be tantamount to gambling at casinos, opined critics. One consultant promoted the regulatory revisions voicing that they were comparatively reasonable though possibly leaning more towards the lenient side.
However, many were of the view that the timing was all wrong with the economy witnessing one of the longest expansions of all time and a potential bubble in the making due to the artificially lowered rates of interest and tax cuts. It evoked memories of self-policing that led to the 2008 crash; this was therefore a major deregulation to come at the most inappropriate time.
Many felt that it would pave the way for a chain of events leading to a financial crisis like the one witnessed in 2008.
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