On Feb. 26, 2013, attorney Tewary, a member of Occupy the SEC, filed a lawsuit against the Securities and Exchange Commission (SEC) and other bank regulators to compel them to obey the law and finalize the Volcker Rule. That’s the part of the Dodd-Frank Wall Street Reform Act that bars banks gambling with depositors’ money. Dodd-Frank mandated that the regulators, including the Federal Reserve, Comptroller of the Currency, FDIC, SEC and Commodity Futures Trading Commission (CFTC), complete this rule by July 2012.
They have not.
Meanwhile, the banking industry and its customers remain at peril, argues Tewary. Specifically, he worries that banks might lose their deposits if they gamble them away in high-stakes bets.
Congress instructed the regulators to halt such reckless bets. “Plaintiffs suffer the risk of irreparable injury to their deposits by reason of Defendants’ non-action,” Tewary writes. Recall that JPMorgan, supposedly the best managed firm on the planet (according to the bank), lost upwards of $7 billion in depositor money last year on failed bets.
The Tewary lawsuit becomes the first litigation initiated to hasten, as opposed to delay, rulemakings from Dodd-Frank. Eugene Scalia, an attorney with Gibson Dunn & Crutcher (and son of Supreme Court Justice Antonin Scalia), has successfully argued cases against financial rulemaking. The law firm notes Scalia’s success on its website: “Retained by two financial industry trade groups, Scalia and his Gibson Dunn team moved aggressively to beat back” certain financial rules.
For example, one of his lawsuits succeeded in stopping an important SEC rule, congressionally mandated by Dodd-Frank, to improve shareholder rights. Scalia’s suit, echoing a familiar right-wing complaint, claimed the agency inadequately weighed the rule’s costs and benefits.
Insiders such as CFTC Commissioner Bart Chilton observe that the Scalia lawsuits have essentially frozen the pace of regulation with this cost-benefit strategy. “Regulators found themselves outmatched by Scalia,” observes a story posted on the Scalia law firm website.
Since the Wall Street crash caused significant damage to America, preventing another one should be a major benefit. BetterMarkets, a government watchdog, estimates the crash cost about $12 trillion. The Government Accountability Office recently published a Jan. 16 report with a similar figure.
The cost to banks to obey these new rules meant to prevent another $12 trillion disaster will be relative decimal dust. Cheers to Mr. Tewary for making the straightforward case that banks shouldn’t gamble with savings because real people may be harmed. In exchange for socializing deposit insurance for the banks in 1933, Congress required banks to restrict themselves to socially useful practices, such as making loans to the real economy. Over the decades, clever lawyers peeled away those restrictions, leading to the disaster that visited the global economy in 2008.
Tewary helped Occupy the SEC write the 400-page comment letter on the Volcker Rule last year that stands as perhaps the best, most thorough, most authoritative dissection of this complex rule (next to the comment filed by Public Citizen). Occupy the SEC includes members who worked on Wall Street, who traded derivatives, who built the risk models.
Tewary’s clients are Eric Taylor, who banks at JPMorgan, and Kristine Ekman, a client of Wells Fargo. There are roughly 200 million other people in the same precarious boat as Taylor and Ekman who will benefit when the court appreciates the wisdom of Tewary’s lawsuit. The Wall Street police should indeed obey the law.
Bartlett Naylor is the financial policy reform advocate for Public Citizen’s Congress Watch. Follow him on Twitter at @BartNaylor.