Paul Volcker and the Vatican, on the same page

Rethinking Bretton Woods | Tue, Oct 25, 2011


Washington DC October 25 - The distinction between ordinary credit and investment banking would allow “a more effective management of the “shadow markets” which have no controls and limits,” according to a document released today by the Pontifical Office of Justice and Peace, an arm of the Holy See.

This is one of a number of issues that the document considers should be part of bringing economy and finance back within the boundaries of their obvious responsibilities at the service of society.

A separation between traditional banking and the risky profit-making activities from which banks had come to derive most of their revenue in the period leading up to the Great Recession was one of the key aspects of contention in the recent US financial reform legislation.

The requirement is embodied, in a watered down form, in a provision called the “Volcker rule,” because it was first proposed by Mr Paul Volcker, the former chairman of the US Federal Reserve. The rule is very fragile as a recent proposal made by US regulatory agencies might, analysts say, make it easy prey to circumvention by banks.

The document also vindicates measures such as financial transaction taxes and making public funding support for banks conditional upon virtuous banking behavior addressed to develop the real economy.

In a way, the positions taken by the Church should not represent a surprise, but a reformulation of old Catholic Teaching that is adapted in “reading the signs of the times.”

A thorough reading of key texts issued by the Pope over the years addressing, for instance, the relationship between labor and capital, the social function of property, the inalienability of the global commons, would suggest a strong need for the State to regulate financial markets. 

“Even if this is not so new,” said Jim Hug, the President of the Center of Concern, “it is a good reminder of the role that we have – or we should claim – as Catholics in participating in the different forms of public life we have access to, in order to shape financial rules.”

The document contains an indictment of the economic liberalism that “spurns rules and controls” and utilitarian thinking as the cause of the problematic developments in the economy and inequality and distortions.

The document also takes on the reform of the monetary system and calls for a commitment some form of global monetary management. This should be a wake-up call for the G20.

“Unfortunately, the type of reform required for a monetary system that avoids recessionary adjustments and helps countries draw benefits from trade seems already not in the cards for this G20 Summit” said Aldo Caliari, who directs the Center of Concern’s Rethinking Bretton Woods Project, referring to the G20 Summit scheduled to take place in Cannes in November.

Indeed, the Pontifical Council seems quite sanguine about what it calls “clubs” or larger or smaller groups of developed countries.

They “did not appear to respect the representative principle fully, in particular of the less developed or emerging countries,” it says.

For more information and to set up interviews contact:

Ann Venton, 
Tel.: 202 635 2757 x 134

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