Merkley-Levin: GAO Study on Proprietary Trading Is a Major Disappointment

Washington, DC – Senators Jeff Merkley (D-OR) and Carl Levin (D-MI), the primary authors of the Merkley-Levin provisions limiting proprietary trading, issued the following statement on the release of a Government Accountability Office (GAO) study today: 

“The GAO study is a major disappointment.  At best it is incomplete.  At worst it is misleading. 

“This study was required by legislative statute as part of the Dodd-Frank financial reform bill.  We worked with GAO to make it clear that it should look into proprietary trading in all of its facets. 

“Congress provided a definition of proprietary trading to work with; direction to look at proprietary trading wherever it exists; and direction to look at how proprietary trading losses can contribute to instability of financial institutions.

“Rather than follow the statutory directions, GAO has examined in detail only proprietary trading which occurs on distinct ‘stand-alone’ proprietary trading desks and gave only passing consideration to the risks and conflicts of interest associated with proprietary trading more broadly.  Just a fraction of all proprietary trading occurs on stand-alone desks, as the Financial Stability Oversight Council noted in January and as GAO itself acknowledges.  Thus, the GAO study is woefully incomplete. 

“GAO claims they could not access the data necessary to undertake the full study required by Congress.  This is unfortunate.  While we are not surprised that, even with its limited review, the GAO concluded that proprietary trading is riskier than other activities, a complete study of proprietary trading would have been of much greater value to policy makers and regulators.

“The report reminds us of the story of a man who dropped his keys at night and then began looking for them under a nearby parking lot light, not because he dropped them there but because that was where the light was.

“GAO missed this opportunity to help shine more light on the high-risk gambles that decimated millions of families and businesses and nearly destroyed our financial system.

“High-risk investing can be a valuable component of allocating capital in our economy.  But this high-risk investing belongs in hedge funds, not in our commercial banks designed to make loans to our families and businesses.  That was the key point made in the Volcker Rule provisions of the Merkley-Levin banking legislation, and it is now up to regulators to implement these provisions and protect our economy from the high stakes gambles inside commercial banks that created so much havoc over the last four years.” 

A copy of the letter Merkley and Levin sent to the GAO can be found online here.