By Simon Johnson
On Wednesday morning, two subcommittees of the House Financial Services Committee held a joint hearing on the Volcker Rule. The Rule, named for former Fed chair Paul Volcker, is aimed at restricting certain kinds of “proprietary trading” activities by big banks – with the goal of making it harder for these institutions to blow themselves up and inflict another deep recession on the rest of us.
The Volcker Rule was passed as part of the Dodd-Frank financial reform legislation (it is Section 619) and regulators are currently in the process of requesting comments on their proposed draft rules to implement. Part of the issue currently is claims made by some members of the financial services industry that the Volcker Rule will restrict liquidity in markets, pushing up interest rates on corporate debt in particular and therefore slowing economic growth.
This argument rests in part on a report produced by Oliver Wyman, a financial consulting company. Oliver Wyman has a strong technical reputation and is most definitely capable of producing high quality work. But their work on this issue is not convincing. (The points below are adapted from my written testimony and verbal exchanges at the hearing; the testimony is available here.) Continue reading “Should We Trust Paid Experts On The Volcker Rule?”