Key Development: Sen. Jeff Merkley (D-Ore.) asks federal financial regulators whether large losses by Credit Suisse Group AG in distressed holdings might show whether the firm violated the Volcker Rule.
A prominent Senate Banking Committee member is asking federal financial regulators whether large losses by Credit Suisse Group AG in distressed holdings might show whether the firm violated a federal ban on proprietary trading.
Earlier this year, the Zurich-based bank reportedly began selling distressed debt that led to losses at the end of 2015, mostly in small chunks. Credit Suisse wrote down more than $600 million in distressed credit and securitizations.
“Credit Suisse’s failures to effectively oversee its risky trading operation bring to the surface an on-going concern I have” about whether the Volcker Rule is being properly implemented, Sen. Jeff Merkley (D-Ore.) said in a May 5 letter to the heads of five financial regulators, including the Securities and Exchange Commission and Federal Reserve Board of Governors. Merkley said the losses could reflect that high-risk proprietary trading still persists at the bank and in the industry.
The Volcker Rule, found in Section 619 of the Dodd-Frank Act, bans proprietary trading by banks and prevents them from owning or investing in hedge funds and private equity funds.
“How can the American public have confidence that banking organizations are complying with the Volcker Rule when this type of massive loss can occur?” Merkley wrote.
Merkley asked for more details on Credit Suisse’s trading positions that led to the losses, and whether those positions or bankers’ pay potential violates the Volcker Rule.
The letter was also sent to the leaders of the Office of the Comptroller of the Currency, Commodity Futures Trading Commission and Federal Deposit Insurance Corporation.