As Federal Reserve chairman more than 30 years ago, Paul Volcker tamed out-of-control inflation and helped rescue the U.S. economy.
The 85-year old later shaped some of the reforms contained inthe Wall Street overhaul known as Dodd-Frank after the 2008 financial meltdown. The stooped 6’7” regulator—quite literally a giant in the field—became the namesake of a rule meant to restrict the ability of government-protected banks to speculate in the markets for their own profits.
So when Volcker declared on Monday that the financial regulation system is broken, it’s time to sound the alarm. The gist of his complaint is thatDodd-Frank was passed in the middle of 2010, yet many of its biggest regulations have not been finalized and there is no end in sight.
“I know it’s a complicated bill. I know the markets are complicated,” Volcker said at a conference for the National Association for Business Economics. “Two-and-a-half years later you can’t have a regulatory apparatus that’s devised by the most important piece of legislation in recent years? That suggests something is rather wrong. Something is dysfunctional.”
More than 63 percent of the 279 rulemaking deadlines in Dodd-Frank have been missed as of Friday, according to the law firm Davis Polk & Wardwell.
As an example, Volcker used his own rule. It was created to prevent financial institutions with access to government-insured deposits and Federal Reserve programs from taking risks that could ultimately be covered by taxpayers. But the language remains up in the air more than a year after a draft proposal was released.
Five different agencies must approve the rule, so one can effectively veto the process. Also one of those agencies, the Securities and Exchange Commission cannot take any action until its fifth board member—President Obama has nominated Mary Jo White—receives Senate approval.
Volcker also noted that banking industry lobbyists have made the rulemaking process cumbersome. The proposed 35-page Volcker Rule included more than 200 questions raised in regulatory comments by the financial sector.
His comments hewed closely to those of Sen. Elizabeth Warren, D-Mass., who suggested in her committee grilling last week of current Fed Chairman Ben Bernanke that the era of “too big to fail” banks has yet to end, despite the reforms introduced in 2010.
But Volcker is also challenging the position of the Obama administration. For months, senior administration officials have claimed it is better to get the final rules correct than meet the deadlines set by Dodd-Frank. Volcker’s conclusion is that the drawn-out process undermines the effectiveness of the rules.