Banks Facing More Regulatory Challenges Aiming at 'Too Big to Fail'

Banks are about to face more regulatory challenges as the US Federal Reserve and other agencies are due to issue a long-overdue report setting out recommendations preventing financial firms from dealing a devastating blow to the economy, Reuters said today.

The report was due to be completed within 18 months of Dodd-Frank’s approval in 2010, but foot-dragging by regulators has somewhat delayed the exercise.

Join the industry leaders at the Finance Magnates London Summit, 14-15 November, 2016. Register here!

Bankers are amongst those dreading the release since after years of contending with the Dodd-Frank Act, they are worried the document may suggest sweeping changes to lenders’ ability to invest in physical commodities and buy direct stakes in companies.

Mark Williams, a former Fed bank examiner, said of the regulators: “Dodd-Frank gives them the right based on further study to create policy to better protect our financial markets. The law did not go far enough in constructing the needed guardrails around our financial systems.”

Volker Rule

The report was commissioned so that regulators could review the industry’s investment activities and determine whether they could have a negative effect on the safety and soundness of the financial system.

A brief provision tucked over 200 pages into Dodd-Frank under section 620, making the mandate easy to lose track of next to section 619, the lengthy passage that preceded it better known as the Volcker Rule.

One of Wall Street’s most loathed Dodd-Frank provisions, Volcker instituted a wide-ranging ban on banks trading with their own money or taking big stakes in hedge funds.

Copper Holdings

The proposed rule for copper seeks to reverse a 1990s decision that designated the commodity a precious metal in a move that permitted banks to load up on the metal.

JPMorgan’s copper holdings played a key role in a 2014 investigation which found that lenders used their ownership of metals and other physical commodities to dominate markets and gain unfair trading advantages, raising financial risk, conflict of interest and market manipulation concerns.

Although JPMorgan has since offloaded much of this business and not pursued the copper ETF, the rule regulators are working on labelling copper an industrial metal to prevent a JPMorgan repetition.

Scrapping of Dodd-Frank?

The overhaul of Wall Street rules could come under the spotlight again under the next US president as Republican candidate Donald Trump has called for the scrapping of Dodd-Frank, as reported by Finance Magnates earlier this year.