His name is synonymous with one of the most controversial rules that emerged from the Dodd-Frank Act. Now, Paul Volcker, former Federal Reserve chairman, is behind a slate of ambitious financial reform proposals that go beyond that still-evolving ban on proprietary trading by banks.
On Monday, the Volcker Alliance—a nonpartisan, nonprofit organization launched in 2013—issued a report warning that “failure to reorganize the regulatory structure will contribute to the buildup of systemic risk and make us more vulnerable to the next financial crisis.”
Among the proposals it offers is merging the Securities and Exchange Commission and Commodity Futures Trading Commission to create a new, independent investor protection and capital market conduct regulator. A similar move was initially planned for, but dropped, from the Dodd-Frank Act.
The new entity would be governed by a board of five members, each appointed by the president and confirmed by the Senate to staggered seven-year terms without regard to political party affiliation. It would be funded through fees and assessments, not including fines and penalties.
The new regulator would combine the current rulemaking authority of the SEC and the CFTC, but prudential supervision of broker-dealers, swap dealers, derivatives clearing organizations, futures commodity merchants, and money market funds would be shifted to a new Prudential Supervisory Authority (more on that in a moment).
The Financial Stability Oversight Council would continue its current role, but be required to establish a Systemic Issues Committee to vote on designations of systemically important financial institutions and evaluate risky activities and practices. It would be composed of the chairman of the Federal Reserve, chairman of the Federal Deposit Insurance Corporation, director of the Federal Housing Finance Agency, director of the Consumer Financial Protection Bureau, the chair of a new Investor Protection-Capital Market Conduct Regulator (created by combining the SEC and CFTC), the director of the Office of Financial Research, and a state insurance commissioner.
The SIC would have the ability to designate SIFIs and require new or enhanced prudential standards and safeguards on all activities and practices that could pose a threat to systemic stability even if conducted outside the present sphere of prudential supervision.
The OFR would be moved out of the Treasury Department and become an independent entity, with its director appointed by the president and subject to Senate confirmation.
A new Prudential Supervisory Authority would be an independent agency with a strong link to the Federal Reserve, the report proposes. Its purview would encompass the prudential supervisory functions currently performed by the Federal Reserve, the Office of the Comptroller of the Currency, and FDIC for bank and thrift holding companies, state and federally chartered depository institutions, branches of foreign banking organizations, financial market utilities, and SIFIs. It would also take over prudential supervisory functions currently performed by the SEC and CFTC. The PSA would have a special division for the supervision of community banks and be funded through either industry assessments or the Federal Reserve System
The Federal Reserve Board would have rulemaking authority for establishing prudential standards, including setting capital, liquidity, and margin requirements. The PSA would be authorized to propose related regulations or guidelines to the Federal Reserve for approval.
To enhance interagency coordination, an independent member of the PSA would serve on the board of the FDIC, replacing the Comptroller of the Currency, an agency that would be eliminated as part of the restructuring.