(Bloomberg) -- Paul Volcker said he wasn’t involved with writing the final version of the rule that bears his name, staying abreast of developments from a distance as regulators crafted details of his curbs on trading by banks.
“It’s not my function to stay involved with the agencies,” Volcker, 86, said in an interview yesterday. “I get reports and updates, a problem here and a problem there, but nothing directly involved. I personally stayed away from talking with any of the principals.”
The former Federal Reserve chairman said he didn’t know how the final draft was worded before it was published yesterday. “You probably have read the rule more than I have,” Volcker said. “It’s complicated, but I was gratified to see that the rule itself is shorter than my own home insurance policy.”
The Fed and four other regulators adopted the Volcker rule almost five years after he introduced the idea. The measure, prompted by the 2008 financial crisis, seeks to keep banks from taking positions that could cause their collapse. It takes full effect in 2015 over objections from lobbyists seeking to protect the $44 billion that the biggest U.S. banks make from trading securities.
“I talked to the regulators today,” Volcker said after the final version was released. “They’ve done a good job of balancing. You can either regulate by rule or by principle. This regulation attempts to do both. Principle part is the one I talk a lot about.”
Volcker was the Fed’s chairman from 1979 to 1987 and pushed interest rates up to 20 percent to tame U.S. inflation that had persisted for a decade. He advised President Barack Obama’s first election campaign and led an advisory committee in the first two years of the administration. That’s when Volcker persuaded Obama to include curbs on trading in the 2010 Dodd- Frank Act’s overhaul of the banking industry.
The result is 71 pages long, with a preamble of about 850 pages.
Volcker proposed the idea in January 2009 when he called for rules to curtail risk-taking by systemically important financial institutions and limit their share of deposits. The plan was outlined in a report from a panel of former central bankers, finance ministers and academics known as the Group of Thirty. He called banking “a mess” and said the financial system had “failed the test of the marketplace.”
Obama introduced the rule in January 2010 with Volcker standing beside him.
The proposal drew opposition from bank lobbyists, and the onslaught became so intense by January 2010 that Volcker went before 1,200 people at the Economic Club of New York to appeal for help. The former Fed chairman accused the industry he once oversaw of promoting “reform light” that wouldn’t stave off future crises.
“If you agree, make your voices heard somehow or another,” Volcker told the group, whose members included bankers, hedge-fund managers, economists, lawyers and former government officials.
Turf wars among regulators contributed to the difficulty of completing the rule, Volcker said.
“Without doubt, when you have five agencies that have to come together on a common rule, it’s obviously a field day for people finding reasons to disagree,” he said. “Everybody thinks they have leverage because every vote is needed.”