WASHINGTON (Reuters) - A group pushing for tighter regulation of Wall Street is suing top U.S. financial regulators over delays in implementing a ban on proprietary trading by banks, part of the Dodd-Frank financial reform law that was supposed to take effect last summer.
Occupy the SEC, a subset of Occupy Wall Street that focuses on financial regulators such as the Securities and Exchange Commission, said it wants a federal court to order regulatory agencies to put out final regulations to enforce the Volcker rule, as the ban on speculation by banks is known.
Members of the group say they are at risk of losing money they have deposited in U.S. banks if authorities do not implement the law.
“Congress passed the Volcker rule in 2010 in order to re-orient deposit-taking banks towards safe, traditional banking activities...and away from the kind of speculation that has imperiled deposited funds as well as the global economy at large,” the group said in its complaint.
“While some banks have pared down their proprietary trading activities in anticipation of a fully implemented Volcker rule, such activities nevertheless persist,” the complaint said.
The Volcker rule, which was required by the 2010 Dodd-Frank Wall Street reform law, would block banks from making speculative trades with their own money.
Backers of the rule, including former Federal Reserve Chairman Paul Volcker, for whom it was named, say such proprietary trading exacerbated the 2007-2009 financial crisis.
The SEC, Commodity Futures Trading Commission, Federal Deposit Insurance Corp, Office of the Comptroller of the Currency and Federal Reserve were assigned to write the rule, which was scheduled to take effect last July.
But the final version of the rule has been delayed amid disagreements among the agencies and lobbying from the banks.
Regulators have said they hoped to complete the rule in the early part of 2013, but there is no definite timetable for completion. SEC Commissioner Daniel Gallagher said last week the commission has “taken a back seat” to the bank agencies on the Volcker rule for too long.
Fed Chairman Ben Bernanke testified before Congress on Tuesday that the Fed has made a lot of progress on the Volcker rule and that agencies are finding agreement on outstanding issues.
Bank groups and Republicans want regulators to take their time. They say the rule as written would cramp liquidity and could hit parts of the banking business that are not as risky.
Occupy the SEC’s complaint said two of its members have checking accounts at JPMorgan Chase and Wells Fargo and that their deposits are at risk until regulators complete the proprietary trading ban.
The group cited last year’s “London Whale” debacle, in which JPMorgan lost about $6 billion on risky trades, as evidence that banks are not curbing speculative activity enough.
“Plaintiffs seek to safeguard their deposits from bank speculation and are consequently relying on the government to implement the Volcker rule,” the complaint said. “At this stage, they have no choice but to wait until the defendants get around to doing that.”
The group named FDIC Chairman Martin Gruenberg, Comptroller of the Currency Tom Curry, SEC Chairman Elisse Walter, CFTC Chairman Gary Gensler and the Fed’s Bernanke in its complaint, filed in the U.S. District Court for the Eastern District of New York.
It also named Mary Miller, undersecretary of the Treasury for domestic finance, and Neal Wolin, who is currently acting secretary of the Treasury. The Treasury Department is not directly involved in writing the Volcker rule but has a coordinating role.
Spokesmen for the SEC and FDIC declined to comment. The CFTC, Fed, OCC and Treasury did not immediately respond to requests for comment.
Reporting By Emily Stephenson; Editing by David Gregorio