Washington policymakers should tighten the Volcker rule’s ban on banks’ speculative trades by reining in an exemption for hedging activity, former U.S. bank regulator Sheila C. Bair said Thursday.
Speaking at a roundtable hosted by the U.S. Commodity Futures Trading Commission, the former chairman of the Federal Deposit Insurance Corp. said that exemptions to the Volcker rule should be strictly defined and that banks should have to publicly disclose their hedges.
“I would tighten the rule,” she said. “A hedge should not be allowed unless it is a hedge.”
Banks have actively lobbied for broadly defined exemptions, but those efforts have been weakened since JPMorgan Chase announced last month that it lost at least $2 billion on a botched hedging strategy. Since that announcement, potential losses have mounted.
The Volcker rule, part of the 2010 Dodd-Frank financial reform law, has been seen as a critical tool to rein in the type of excessive risk-taking that fueled the financial crisis.