“Total revenue for the U.S. banks was the highest since 2009,” KBW noted.
Similarly, JPMorgan Chase said that its trading revenue increased 13 percent, to $6.57 billion from $5.82 billion from the prior year’s quarter. Aided by tax cuts, JPMorgan posted a record $8.71 billion in quarterly earnings. Other big banks, with the exception of the tarnished Wells Fargo, were putting up similarly admirable profit numbers. And rising interest rates point to more to come.
So why rush to undo the proprietary trading safeguard? The former Federal Reserve chairman Paul Volcker, who helped write the rule, is sympathetic to the banks’ desire to unwind some of the red tape. Still, he warned that deregulation should not “undermine the core principle at stake — that taxpayer-supported banking groups, of any size, not participate in proprietary trading at odds with the basic public and customers’ interests.”
It’s also disappointing to see that this proposal has the backing of the Fed chairman, Jerome Powell, and the former Obama official and board member Lael Brainard, who both know from the experience of the last downturn the possible risks here. The Great Recession amply demonstrated that when banks chose between proprietary trading and customers’ interests, the customers lost out. And we haven’t even had any kind of market jolt to thoroughly test what would happen under the existing rules.
Congress has already rolled back some Dodd-Frank risk regulations on all but the largest banks, in a law President Trump signed last month.
Mr. Volcker, a truly wise man who conquered rampant inflation as Fed chairman from 1979 to 1987, said he had faith that proprietary trading would still be amply regulated and “the final rule will strongly maintain that position by, as intended, facilitating its practical application.”
Forgive us for being less trusting, Mr. Chairman. There’s a saying that the time to fix a leaky roof is when the sun is shining. And our economy is, if not shining, certainly sunny. The fear is that, when it comes to our financial system, both our Congress and our regulators are now loosening the shingles.