War of Words Over the Volcker Rule: a Timeline

Everyone has an opinion about the Volcker Rule.

That, at least, has been the impression on Wall Street and in Washington ever since the Dodd-Frank financial overhaul set off a war of words over the rule, which seeks to bar banks from trading for their own gain.

Now, on Tuesday, more than three years after Dodd-Frank was passed, five federal agencies are expected to vote to approve the rule, though some might do so in private because of inclement weather. After months of behind-the-scenes maneuvering and impassioned television interviews, the rule will soon usher in an uncertain new era on Wall Street.

The rule, named for the former Federal Reserve chairman Paul A. Volcker, is in some ways tougher than the banks had hoped. At the same time, some critics say that it does not go far enough.

The opponents of the rule, who argued that it could choke off banks’ ability to help markets function, were dealt a setback in May of last year when JPMorgan Chase disclosed a multibillion-dollar trading loss. Even Jamie Dimon, JPMorgan’s chief executive, conceded that the loss “plays right into the hands of a bunch of pundits out there.”

Below, we trace how the public debate over the Volcker Rule has evolved.

2010

February
The debate begins even before the Dodd-Frank law is passed. Alan S. Blinder, an economist at Princeton, expresses skepticism in an opinion essay in The Wall Street Journal: “It is devilishly difficult to draw bright lines between proprietary trading and trading, hedging, and market-making on behalf of clients.”

That essay is followed by a letter to the editor from a group of former Treasury secretaries who support the proposed legislation. “The principle can be simply stated. Banks benefiting from public support by means of access to the Federal Reserve and F.D.I.C. insurance should not engage in essentially speculative activity unrelated to essential bank services,” they wrote.

June
Mr. Volcker is reported to be disappointed with how the rule was turning out. Bloomberg News writes that he “didn’t expect the proposal to be diluted so much, said a person with knowledge of his views. He’s content with language that bans banks from trading with their own capital, the person said.”

July

Dodd-Frank is signed into law.

November
Mr. Volcker weighs in on the rule in a comment letter to the Financial Stability Oversight Council. He writes that “clear concise definitions, firmly worded prohibitions, and specificity in describing the permissible activities will be of prime importance for the regulators as they implement and enforce this law.”

Conservative lawmakers criticize the Volcker Rule. Representative Spencer Bachus of Alabama, who was the top Republican on the House Financial Services Committee, said in a comment letter to the oversight council that the rule would hurt banks. “Depending on how U.S. regulators choose to implement it, the Volcker rule may spark a mass exodus of clients from U.S. banks to banks based abroad,” he writes.

2011

October
Regulators are preparing to vote on a draft of the rule. Senator Carl Levin, Democrat of Michigan, who co-sponsored the Volcker Rule in Congress, emphasizes the importance of the regulation: “The Volcker Rule is essential to protect taxpayers from banks’ excessive financial risk-taking, conflicts of interest, and from the resulting billion-dollar bailouts. I look forward to reviewing the proposed rule and hope the regulators reject efforts to weaken the law.”

Regulators approve the draft, which contains some unfriendly surprises for banks. “You’d have to go back to the New Deal for a rule that would have as profound an impact on the financial markets as the Volcker Rule,” Donald N. Lamson, a former Treasury official who helped write the Volcker Rule into Dodd-Frank, says. “If you add it all together, it’s going to increase costs, decrease revenue and profits and potentially scare off your most productive employees,” says Mr. Lamson, now a lawyer at Shearman & Sterling.

The brokerage firm MF Global files for bankruptcy on Halloween, providing fodder for the Volcker Rule debate. “The Volcker Rule needs to be fully implemented quickly to ensure that banks can no longer put taxpayers at risk for making the kind of proprietary trades MF Global made,” Mr. Levin tells Bloomberg News.

2012

January

Jamie Dimon, the chief executive of JPMorgan Chase and an outspoken critic of the rule, delivers a memorable line in an interview with CNBC: “If you want to be trading, you have to have a lawyer and a psychiatrist sitting next to you determining what was your intent every time you did something.”

February
A deadline approaches for comments on the draft of the rule, inviting a flood of criticism from Wall Street. “This will make the overall economy less stable and less conducive to growth,” David Hirschmann, head of the Center for Capital Markets Competitiveness at the Chamber of Commerce, says in a letter.

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“Paul Volcker, by his own admission, has said he doesn’t understand capital markets,” Mr. Dimon says in an interview with Fox Business Network. “Honestly, he has proven that to me.”

More comments pour in from bank executives. “The proposal, if implemented in its current form, will overly restrain our customer-facing market-making business and our risk-mitigating hedging activities to the detriment of our customers,” Colm Kelleher, then co-president of Morgan Stanley’s institutional securities group, and James A. Rosenthal, the chief operating officer, write in a letter. “Moreover, we believe that the proposal, if implemented as is, would have severe negative consequence for the markets and the U.S. financial system.”

Laurence D. Fink, the chief executive of BlackRock, says in an interview with CNBC’s Maria Bartiromo that the rule has “holes.” He continues: “We are not in support of it. We sent the letter as a firm. It’s very hard for me to understand how to navigate the Volcker Rule. What is proprietary trading? What is flow trading? It’s going to be very definitional.”

Dennis Kelleher, who runs Better Markets, a financial regulatory reform group, laments the assault from Wall Street, saying the rule is “the bastard child of the lobbying industry.” He says: “Most of the length, complexity and questions are in there because of industry lobbying.”

April

Mr. Volcker addresses the debate in an interview with Bill Moyers. He says: “A lot of the criticism is over the complexity of the thing and, essentially it’s down to a lot of details. But the basic rule, of course, is incorporated in the law. And I think when you get all finished with this Sturm und Drang in the Congress now, I think you’re going to have a reasonable interpretation of a law and an interpretation that can be reasonably followed by the banks and enforced by the regulators.”

Mr. Fink of BlackRock is asked in an earnings call about the possibility of a “more Draconian” Volcker Rule. “That’s not in our interest as investors. It may be in the interest of society. But there is a fundamental cost with that and investors are going to have to pay for that,” he says.

May

JPMorgan discloses a multibillion-dollar trading loss, a big embarrassment for a bank that prides itself on risk management.

Representative Barney Frank, the Massachusetts Democrat for whom the Dodd-Frank law was named, releases a statement. “This regrettable news from JPMorgan Chase obviously goes counter to the bank’s narrative blaming excessive regulation for the woes of financial institutions,” the statement says. “JPMorgan Chase, entirely without any help from the government, has lost, in this one set of transactions, five times the amount they claim financial regulation is costing them.”

“The enormous loss JPMorgan announced today is just the latest evidence that what banks call ‘hedges’ are often risky bets that so-called ‘too big to fail’ banks have no business making,” Mr. Levin, the Michigan Democrat, says.

Mr. Dimon says on a conference call that the loss “plays right into the hands of a bunch of pundits out there.”

And yet, Mr. Dimon softens his tone on the Volcker Rule. “I don’t disagree with the intent of the Volcker Rule,” he tells fellow bankers in a speech. But he emphasizes that Washington has to be careful not to “throw the baby out with the bathwater.”

August
“This was perfect for everyone who was pushing for more regulation,” Mr. Dimon says of the trading loss in an interview with New York magazine. “We handed it to them on a silver platter.”

2013

July

Jacob J. Lew, the Treasury secretary, sets a year-end deadline for the completion of the Volcker Rule.

He says in a speech: “I want to mention that the Volcker Rule is particularly important, and I will continue to push for swift completion of a rule that keeps faith with the intent of the statute and the president’s vision.”