March 04, 2013
Feds Hit with Occupy Lawsuit over Volcker Rule
by Robert Kropp
Occupy the SEC files suit against six federal agencies for failing to implement Dodd-Frank
regulations governing risky proprietary trading by banks.
Congressional friends of Wall Street did all they could to keep the so-called Volcker Rule out of
the Dodd-Frank Wall Street Reform and Consumer Protection Act, but the final version of the bill,
signed into law in 2010, contained the provision. Named after former Federal Reserve Chairman Paul
Volcker, the rule placed restrictions on proprietary trading by banks as well as investment by them
in private equity firms and hedge funds.
When SocialFunds.com spoke with Alexis
Goldstein of Occupy the SEC (OSEC) in
2012, the group had just sent a 325-page comment letter to the Securities and Exchange Commission
(SEC), calling for meaningful implementation of the Volcker Rule, which, the letter stated, "is
important to the future of the banking industry and, if strongly enforced, will help move our
financial system in a more fair, transparent, and sustainable direction."
"We were trying
to make sure that the proposed rule matches the statute as much as possible," Goldstein told
SocialFunds.com. "What we were on the lookout for were places in the draft of the rule that were in
violation of the statute, or where it was a risk to financial stability or a risk to the bank
Dodd-Frank established a mandatory deadline for implementation of the Volcker
Rule by the SEC. The deadline passed more than a year ago; in fact, as reported
in the Huffington Post last month, Congressional Republicans are still trying to find ways to
have the Rule repealed.
Last week, OSEC announced that it had filed a lawsuit against six federal
regulators—the Federal Reserve, the SEC, the Commodity Futures Trading Commission (CFTC), the
Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC),
and the US Treasury Department—requesting that the Court compel the defendants to issue a final
"Simply put, the Volcker Rule seeks to limit the ability of banks to gamble with the
average person's checking account, or with public money offered by the Federal Reserve," OSEC
"Almost three years since the passage of the Dodd-Frank Act, these agencies have
yet to finalize regulations implementing the Volcker Rule," the group continued. "The longer the
agencies delay in finalizing the Rule, the longer that banks can continue to gamble with
depositors' money and virtually interest-free loans from the Federal Reserve's discount window."
The lawsuit observes that risky practices such as proprietary trading by banks were
largely responsible for the financial crisis that erupted in 2008 and led to a recession from which
the global economy has yet to recover. Because credit had been so easy to obtain during the years
in which housing prices increased at unprecedented rates, many banks had precarious asset to debt
ratios. When the housing bubble burst, these firms were suddenly faced with bankruptcy and required
a massive taxpayer bailout to survive.
As the economist John Maynard Keynes wrote,
"Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is
serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital
development of a country becomes a by-product of the activities of a casino, the job is likely to
One need only look to last year's loss of billions of investment dollars by
a London subsidiary of JPMorgan Chase—the biggest of the so-called too big to fail banks—to realize
that the words of Keynes still go unheeded on Wall Street. Even an internal review by the bank of
its losses—which could total as much as $9 billion—"serves as a case study of how excessive
complexity and poor oversight still threaten many parts of the financial system more than four
years after the failure of Lehman Brothers," according to a New York
Times editorial published in January.
Furthermore, as OSEC's lawsuit points out, "It
has recently been reported that other traders at JPMorgan actually bet against the CIO office,
virtually guaranteeing that some division within the bank would suffer losses…It is uncertain
whether another bank (or even JPMorgan itself) would survive another such fiasco, given the high
level of interconnectedness and leveraged risk at most bank trading desks."
stage, Plaintiffs are left with no adequate remedy at law," the lawsuit concludes. "Only the
declaratory, injunctive, and mandamus relief that this Court can provide will fully redress the
harms to be suffered by Plaintiffs."