Explosive revelations today from an outgoing Goldman Sachs executive emphasize the need for Wall Street agencies to finalize the Volcker Rule reform, which would prevent many significant conflicts of interest in the financial industry.

In a New York Times op-ed today, Goldman Sachs’ derivatives salesman Greg Smith writes that Goldman’s culture encourages “ripping eyeballs out” of customers who are sometimes labeled as “muppets.”

The testimonial comes on the heels of stress tests results of the nation’s 19 largest financial institutions.

The Volcker Rule, approved as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, prohibits banks from engaging in trades for their own profits and strictly bars trading that conflicts with customers’ interests. But a barrage of self-serving industry comments have led regulators to signal they will delay implementation beyond the statutory deadline of July 2012. Goldman Sachs submitted two comment letters and met with regulators personally an unprecedented six times. Regulators should put Smith’s candid and brave words on the top of any analysis about how best to reform Wall Street and weigh them when considering the motivations behind Goldman’s official comments and meetings.

Smith’s firsthand account emphasizes that each day of delay prolongs the abuse of Wall Street bankers over their clients. Smith also provides crucial evidence that trading in illiquid markets should have no place in the Volcker Rule’s permission for legitimate market making.   Smith summarizes the Goldman culture about trading these complex instruments: “‘Hunt Elephants.’ In English: get your clients – some of whom are sophisticated, and some of whom aren’t – to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them.”

Meanwhile, the Federal Reserve correctly prevented Bank of America and Citicorp from draining capital through increased dividends following results of the third annual stress test. While the Fed should be commended for providing more detail in its report of the test, the test provides little comfort of a robust financial sector. Four banks failed the test outright. Citicorp, the nation’s third-largest bank, was one of them. This failure underscores the fragility of the financial system. Should the nation’s third-largest bank be rendered insolvent by a sharp drop in economic fortunes, reverberations throughout the financial system could cascade into widespread calamity.

JPMorgan Chase and Bank of America, the nation’s first- and second-largest banks, barely exceeded minimum capital standards in the test – another chilling result.

To prevent another taxpayer bailout, banks should build substantially more capital. Dividends paid now should not become advances on another taxpayer bailout. And regulators should put into place a strong Volcker Rule to prevent banks from putting self-serving interests above the real economy.

Bartlett Naylor is Public Citizen’s Congress Watch Division’s financial policy advocate