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The complexity of the Volcker Rule means that it will be nearly impossible for banks to comply with its requirements within set time framesand regulators risk wasting a lot of time trying to enforce the unenforceable.
October 1 -
While the Volcker Rule has been in the works since 2009, the final rule is new to professionals at both banks and regulatory agencies. Everyone involved faces a steep learning curve.
October 7 -
Banks have never before had to establish policies and procedures at the granular level required under the new Volcker Rule. Doing so in a timely manner will be a challenge for most banks. For some, it will be impossible.
October 16 -
The Volcker Rule's data-intensive requirements are creating headaches for banks that still rely on manual processes and use multiple, disparate systems for securities and different derivatives trading.
October 23 -
Banks are hiring armies of lawyers, accountants, compliance consultants and IT vendors as they prepare to comply with the Volcker Rule. Ironically, their attempts to fortify themselves with outsourced knowledge could expose them to more operational risk.
November 4 -
Many foreign banks are confused about how the Volcker Rule applies to them and whether they are required to establish compliance programs for it in the first place.
November 12 -
A number of Dodd-Frank and Basel III regulations will impact banks' investments in the CLO market, but the Volcker Rule poses unique challenges.
November 18
This is the last article in an eight-part
The writers of the
This summer, the largest banks in the U.S. started to report quantitative
At a February congressional bank hearing, politicians repeatedly asked how the five regulators would coordinate their enforcement of the rule. After Federal Reserve Board Governor Daniel Tarullo took the lead several times to explain the process, Rep. Patrick McHenry colorfully declared that Tarullo "is the alpha dog." But even if that label is accurate, it's unclear whether the alpha dog would be the Board of Governors or specific district banks such as the Federal Reserve Bank of New York.
Regulators should be able to enforce the Volcker Rule, but "they will first have to agree on its interpretation among them and with the bank executives," according to Standard and Poor bank analyst Rodrigo Quintanilla. The rule was left open to significant subjectivity not only by the banks, but also by the regulators.
Moreover, the market has yet to see a detailed public description of how the five regulators will coordinate supervision and enforcement. A bank could breach the Volcker Rule because of securities and derivatives issues, which are regulated by the CFTC and SEC but these agencies do not examine the banks.
Nonetheless, some observers say that confusion over regulatory jurisdiction can be overcome. 'At the moment banks been working on meeting this rule for a long time," Quintanilla said. "They will be able to at least comply with the spirit of the rule while discussing details with examiners."
The Volcker Rule interim exam procedures released in June by the OCC are also a useful
The rule's complexity will put a lot of pressure on bank examiners to be up to speed on the labyrinth of
No amount of hard work by bank examiners will matter unless they receive support from their examiner-in-charge and from professionals at regulatory agencies such as lawyers, economists, quantitative analysts and policy experts. Additionally, examiners will have to be empowered to escalate a problem up to senior regulators who have the authority to discuss potential Volcker breaches with banks. Much rests on the ability and willingness of middle management to support their examiners on the ground.
Each of the five regulators has a variety of existing statutory mechanisms to remedy non-compliance with their rules. The OCC, Federal Reserve, and the FDIC, for example, have the authority to impose cease-and-desist orders or civil money fines. Additionally, the Volcker Rule has various anti-evasion provisions that empower regulators to enforce the rule.
In 2015, examination and enforcement of the rule will truly begin. All eyes should be on senior and middle managers at bank regulatory entities to see how they support bank examiners the real alpha dogs of the Volcker Rule.
Mayra Rodríguez Valladares is managing principal at