Perlow said the "financial stability provisions" will also "affect all financial firms to a certain degree."
"The Dodd-Frank Act creates a new financial stability oversight council whose job it is to monitor the entire financial sector and to figure out the riskiest parts and decide which ones need more regulation," said Perlow. "So, if you're a large financial firm of whatever type of flavor or stripe, I think that you need to understand the way this new stability oversight council is going to operate."
Perlow mentioned the Volcker rule saying it "would require banks and bank holding companies to either divest or restructure their proprietary trading operations and their hedge fund in private equity management affiliate," and that would affect many of his clients affiliated with banks.
The Volcker rule, according to Business Week, is a proposed rule created by former Federal Reserve chairman Paul Volcker to "curb risk-taking that fueled the financial crisis." The rule had much stronger language to ban banks from running private-equity and hedge funds but was significantly weakened by the addition of language signifying that banks could "invest up to 3 percent of their capital in such funds." Volcker is said to have been disappointed that Congress was unable to ban "banks from trading with their own capital."
Perlow talked about how the bill mainly "creates a framework" for regulators:
"For most of the important provisions in the act, all it really does is it creates a framework. It authorizes the federal financial regulators to write rules into enforcement and gives them a lot of power in order to do that. So, really the effectiveness of the law is going to be dependent to a very large degree on how firm the regulators are and in my line of work everybody recognizes that that the next stage turns to the rulemaking and the enforcement efforts of the SEC, the CFTC, the Treasury Dept, the Federal Reserve and other financial regulators.
If I were a teacher giving this act a grade, I would give it an incomplete because we don't really know how it's going to play out until we see how the regulators are going to implement it."
This explanation correlates with economist and co-author of 13 Bankers Simon Johnson's assessment that intense debate over banking does not end with the signing of this bill. Now attention turns to whether regulators will push for more rules with tough language that can fit into the framework of the legislation.
I asked Perlow to explain what the enforcement mechanisms in the bill were. He explained how much of the bill will be implemented and enforced:
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
