Michel Barnier, the European Union’s financial services chief, said a proposed U.S. ban on proprietary trading may cause problems for banks in some of the largest economies in Europe.
The so-called Volcker rule, named for former Federal Reserve Chairman Paul Volcker, was included in the U.S. Dodd- Frank Act to restrict risky trading at banks that operate with federal guarantees.
“There are consequences of course and we are concerned about certain countries such as the U.K. or Germany or France who have banks, sometimes large banks, transnational banks, that could cause a systemic risk and who work in the U.S., who are actually useful for the U.S. economy,” Barnier said in an interview with Bloomberg News yesterday.
Barnier, on a two-day visit to the U.S. to meet with top regulatory officials, said Canadian and Japanese authorities also have concerns about the rule. Central bankers and regulators globally have voiced concern that the rule, which would apply to the U.S. operations of foreign banks, may also extend to firms’ operations outside of the country.
“The U.S. should be aware that there is a problem among the different partners,” Barnier said.
In comment letters filed Feb. 13, the world’s largest banks demanded changes to the proposed ban on proprietary trading. They said the Volcker rule, which is scheduled to take effect in July, would increase risk, raise investor costs, hurt U.S. competitiveness and be vulnerable to court review. Group of 20 leaders haven’t endorsed the rule, which exempts U.S. government debt but not non-U.S. government bonds.
“The rule entails exceptions for instance concerning the U.S. sovereign debt which means that the banks that would deal with that would not be able to deal with the sovereign debt of other countries and this has consequences on European banks, Barnier said. “We do not understand why there should be an exception only for the U.S. sovereign debt, but we will talk about it.”
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