Volcker rule to be refined, not scrapped
U.S. Regulators told lawmakers last week that they will adjust prohibitions on banks’ proprietary trading per Volcker rule restrictions, but will resist calls to altogether drop the measure that sprang from the Dodd-Frank Act. Federal Reserve Governor Daniel Tarullo, along with top officials from four other agencies, defended the rule at a House Financial Services joint subcommittee hearing in Washington.
“Congress actually laid out seven key permitted activities, or if you wish, exceptions,” Commodity Futures Trading Commission (CFTC) chairman Gary Gensler said to lawmakers. Gensler cited underwriting, market-making and hedging as key exceptions, adding “We want to fully comply with the intent of Congress.”
House Republicans and banking-industry groups are concerned that the Volcker rule would create confusion, impede banks and put firms such as Goldman Sachs and JPMorgan Chase at a competitive disadvantage to their overseas rivals.
“The rule’s impact on market liquidity, access to credit, the cost of capital and job creation will unnecessarily stifle the growth of businesses that operate far from Wall Street, and hamper the ability of asset managers, pension funds and insurance companies to grow their portfolios for millions of individual investors,” said Committee chairman Spencer Bachus (R-AL).
The rule, mandated by Dodd-Frank to be in place by July 21, 2012, would ban proprietary trading while allowing short-term trades for market-making and hedging purposes.
Securities and Exchange Commission (SEC) Chairperson Mary Shapiro has no intention of sanctioning banks’ market-making activities.
“We have no interest in pursuing activity where people are intending to provide market-making and get it wrong,” Shapiro told lawmakers.
“The challenge to regulators in implementing the Volcker rule is to prohibit the types of proprietary trading and investment activity that Congress intended to limit, while allowing banking organizations to provide legitimate intermediation in the capital markets,” said Martin Gruenberg, the acting chairman of the Federal Deposit Insurance Corporation (FDIC), in testimony at the hearing.
Volcker Rule regulators resist lawmakers calls to scrap proposal (http://www.bloomberg.com/news/2012-01-18/volcker-rule-regulators-resist-lawmakers-calls-to-scrap-proposal.html). Bloomberg, January 18, 2012
U.S. regulators to defend Volcker rule ban on proprietary trades (http://www.businessweek.com/news/2012-01-20/u-s-regulators-to-defend-volcker-rule-ban-on-proprietary-trades.html). Bloomberg Businessweek, January 20, 2012