Merkley and Levin Instruct Regulators to Follow Congressional Intent on Volcker Rule

Washington, D.C.
– In a letter to federal regulators charged with implementing the Merkley-Levin provisions of the Dodd-Frank Act Friday, U.S. Senators Jeff Merkley and Carl Levin provided explicit instructions regarding their statutory intent to restrict high-risk proprietary trading and conflicts of interest at financial firms.   As the primary co-authors of Merkley-Levin provisions of the Dodd-Frank Act, the senators are providing direction in response to the Financial Stability Oversight Council’s (FSOC) request for comments on how the provisions should be implemented.

Despite recent comments from some who opposed reform of the high-risk trading that contributed to the collapse of the American financial system, strong regulations are essential to preventing future boom and bust cycles that jeopardize the financial stability of American families.

“Now that Congress has passed and the President has signed into law the strongest protections for our financial system in 75 years, we look to you to follow the statutory intent to eliminate high risk and conflict-ridden activities at banks, and limit them at systemically significant non-bank financial firms,” the senators wrote.

“The Merkley-Levin provisions on proprietary trading and conflicts of interest, often called the Volcker Rule, offer key measures to address these issues.  The Financial Stability Oversight Council (FSOC) study will hopefully recommend vigorous enforcement of them and provide guidance to agencies on how to ensure their effective implementation.  Financial firms must not be allowed to rely on implicit or explicit government support, through access to the Federal Reserve discount window, FDIC deposit insurance, or other taxpayer- financed mechanisms, to place bets where heads they win, tails taxpayers lose.”

The senators’ letter adds additional detail to the instructions laid out in comments Merkley, Levin, and 16 of their colleagues submitted to the FSOC last week Thursday.

The Financial Stability Oversight Council is a collaborative body established as part of the Dodd-Frank Act to monitor and address risks to financial stability.  The FSOC is chaired by the Secretary of the Treasury and authorized to facilitate regulatory coordination, recommend stricter standards, and break up firms that pose a “grave threat” to financial stability, among other responsibilities.  The FSOC is currently requesting comments to inform a study of the implementation of the Merkley-Levin provisions, to be completed by January 2011 as required by the Dodd-Frank Act.  The comment period closes today. 

PDF of the letter from Senators Merkley and Levin: