Epstein UMass Economics

Epstein argues that the Volcker policy on big banks is unlikely to be implemented

Prof. Gerald Epstein, Umass Amherst EconomicsGerald Epstein, UMass economics professor and co-director of the Political Economy Research Institute (PERI), is a member of the group SAFER, an organization that supports the Volcker policy. This policy was brought forth by the Obama administration for the purpose of reducing financial recklessness among big banks. With this new policy, large banks would be prevented from conducting their own proprietary trading and owning hedge funds. However,  Epstein remains skeptical that the policy will not have a tangible impact on the way large banks operate.  He claims that it would require political magic or “a big push from the Obama administration” to actually implement.

Maybe Jamie Dimon and his colleagues at JPMorgan Chase (JPM: 40.87, 0.85, 2.12%) didn’t get the memo: the Obama administration wants to prevent another financial crisis by reining in Wall Street risk and putting an end to banks that are “too big to fail.”

The administration hopes to achieve this through the so-called Volcker rule, which seeks to limit risk by barring banks that accept government-backed deposits from conducting their own proprietary trading and from owning hedge funds.

Named for former Federal Reserve chairman and current top Obama economic advisor Paul Volcker, the proposal was unveiled last month, and the White House is pushing for its inclusion in the broad financial reform legislation slowly winding its way through Congress.

Almost immediately, key members of Congress expressed skepticism for the rule, notably Senator Chris Dodd, D-Conn., chairman of the banking committee that is overseeing financial reform.

European leaders earlier this week publicly denounced the proposal, saying it ran counter to Europe’s fiscal interests and that it doesn’t reduce risk, just moves it somewhere else.

Then on Tuesday JPMorgan, the second biggest U.S. bank, got a little bigger by slapping down $1.7 billion for – naturally – a proprietary commodities trading business owned jointly by Sempra Energy and Royal Bank of Scotland (RBS: 11.13, 0.41, 3.82%).

Speculation quickly arose as to whether Dimon, JPMorgan’s CEO, was sending a not-very-subtle message to the president.

“Is it possible that JPMorgan Chase does not see these proposed rules and laws going into effect for any sustained period or perhaps not at all,” asked influential banking analyst Richard Bove of Rochdale Securities.

Bove went on to praise Dimon for a “courage sorely lacking elsewhere among other leaders of American banks.”

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