(November 16, 2012) – The chief federal lobbyist for the California Employees’ Retirement System (CalPERS) does not foresee the Volcker Rule coming into full effect by the year’s end.
In a CalPERS board meeting on November 15, board member J. J. Jelincic, former president of the California State Employees Association, questioned Tom Lussier about his take on the immediate future of the Volcker Rule. Nearly two years after the financial regulatory legislation was publically endorsed by President Barack Obama, it still has yet to be finalized or implemented.
Jelincic asked: “Tom, in your month in Washington, for October, you point to [Senators Carl] Levine and [Jeff] Merckly as pushing to get the Volcker rule implemented. Is there—as you look at the tea leaves—is there going to be any effort to get that done before the end of the year? Is it going to get pushed aside until they deal with or don’t deal with the fiscal cliff?”
Lussier was not overly optimistic on this section of the Dodd-Frank Act being implemented before the year’s end.
“I think there will be a push, but I would not be at all surprised to see it delayed until after the beginning of the year,” Lussier said. “The reality is that at this point, most of the work to be done is regulatory. And there are members of Congress, for example, Chairman [Barney] Frank, who has basically said, yes, it needs to happen, but if delay allows it to happen more effectively, then he is okay with that.”
The Volcker Rule separates financial institutions’ investment banking and private equity activities from those firms’ consumer lending arms. Effectively, the rule bans the practice of proprietary trading (prop trading) by commercial banks and their affiliates.
For institutional investors, this rule—if implemented and operates as intended—would reduce counterparty risk for the assets held by major multi-armed finance firms, such as Morgan Stanley and Goldman Sachs.
CalPERS’ lobbyist reported some appetite for the low-awaited implementation, but likely not enough to actually get it down before 2013.
“So the reality is [that] there are somewhat mixed messages in terms of the speed in which this has moved,” Lussier told the board of the $242.5 billion pension system. “That causes some confusion right there. But I would be very surprised if this issue gets any sort of high priority. At this point, we are sort of expecting a pretty brief lame duck [session], that will in all likelihood just push these issues into the next Congress. But we don’t see a lot of other issues being considered.”