The Federal Reserve Bank (FRB) opened the door for banks to securitize risky derivatives with the announcement to “extend the deadline for banks to sell off stakes in hedge funds and private- equity funds” until 2017.
Journalist David Weidner explained: “Now, the ‘push-out’ rule is gone, so we’re in the same position again. And the Fed has delayed a potential roadblock to a taxpayer bailout. In essence, the Federal Deposit Insurance Corp. and the Fed are implicitly suggesting that losses from hedge funds and private equity won’t hold up government support.”
Weidner continued: “Ultimately, let’s be honest, the delay isn’t just a delay, it’s to buy time so the bank lobby can eliminate the Volcker Rule altogether. These investments produced risky, but potentially big, returns. Why is it that the bankers are the only ones with good memories?”
This was part of the official delay of the Volker Rule, which would ban risky betting with derivatives by banks, approved in 2010.
Because of this announcement, Ramsden said: “A break up makes more sense for JPMorgan because, unlike some of its rivals, its individual businesses are strong enough to stand on their own. The bank is partly a victim of its own success.”