Statement of Dissent by Commissioner Rostin Behnam Regarding Volcker Covered Funds Proposal

January 30, 2020

I respectfully dissent as to the Commission’s decision to propose more revisions to the Volcker Rule.  The Volcker Rule, in simple terms, contains two basic prohibitions for banking entities:  (1) they may not engage in proprietary trading; and (2) they cannot have an ownership interest in, sponsor, or have certain relationships with a covered fund.  Last September, the Commission, along with other Federal agencies[1], approved changes that significantly weakened the prohibition on propriety trading by narrowing the scope of financial instruments subject to the Volcker Rule.[2]  Today, the Commission and the other agencies take aim at the second prohibition, and propose to significantly weaken the prohibition on ownership of covered funds.  When the agencies approved the changes on proprietary trading in September, the late Paul Volcker himself sent a letter to the Chairman of the Federal Reserve stating that the amended rule “amplifies risk in the financial system, increases moral hazard and erodes protections against conflicts of interest that were so glaringly on display during the last crisis.”[3]  I can imagine that he would say something very similar about the further changes that we propose today, particularly the erosion of the existing protections regarding conflicts of interest.  I fear that, if we continue to roll back the Volcker Rule, we will soon reach a stage where, sadly, there is nothing left.

[1] The Office of the Comptroller of the Currency, Treasury; the Board of Governors of the Federal Reserve System,; the Federal Deposit Insurance Corporation; and the Securities and Exchange Commission. 

[2] Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds, 84 FR 61974 (Nov. 14, 2019).