Karen Petrou on a Small Step Forward to Supervisory Accountability
Since we sent out our first assessment of the Volcker Rule rewrite and I discussed it with NPR, I’ve heard a lot about whether our analysis under-estimated the risks to which the revisions would put the financial system.  Much of the push-back to the proposal comes principally because it changes an Obama-era rule and thus is on its face suspect.  This isn’t entirely unreasonable given the President’s pledge to do Dodd-Frank a “big number,” but these politics miss the point.  With this proposal, the agencies took a very tentative, but first-time-ever step to putting the onus for compliance not on trading banks, but on themselves.  Those skeptical that this will protect the innocent have good reason to worry – regulators before the crisis were captive both to the industry and “efficient-market” expectations.  But, is it really wrong to expect supervisors to watch carefully and sanction forcefully?