U.S. regulators should “go back to the drawing board” and make extensive revisions to their proposed ban on banks’ proprietary trading, Securities and Exchange Commission member Daniel Gallagher said in a speech.
The SEC and other agencies have received more than 17,000 public comments about the rule named for former Federal Reserve Chairman Paul Volcker, who championed the ban as an adviser to President Barack Obama. Among those expressing concern are regulators from Japan, the U.K. and Canada, Gallagher said.
“Even a quick review of the many substantial comment letters the commission received reveals widespread fears regarding the effect of the proposed rules on the proper functioning of global markets and the competitiveness of the U.S. financial industry,” Gallagher said today in Washington. “These are fears that I share.”
Lawmakers included the Volcker rule in the Dodd-Frank Act to limit risky trading by banks that benefit from federal deposit insurance and other government protections. The 298-page proposal released by the SEC and other agencies in October sought feedback on some 1,300 questions, fueling criticism that the rule is too complex.
“Regulators must be willing to re-examine our initial efforts and, if necessary, go back to the drawing board to make sure we regulate wisely, rather than just quickly,” Gallagher said at an Institute of International Bankers conference.
Wall Street firms including Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) have pressed regulators to make major changes in the final version of the rule, which would also limit banks’ investments in private-equity and hedge funds. Banks said the proposed restrictions are so broad that they could interfere with their ability to facilitate trades for clients, raise costs for investors and increase financial system risk.
In comment letters, foreign regulators have said that the rule, which exempts U.S. government securities, could make sovereign debt markets less liquid.
Gallagher’s comments today echo those of Troy Paredes, his fellow Republican on the SEC, who last month also called for the rule to be re-proposed. The SEC should take a lead role in crafting the rule because of its expertise in overseeing the securities markets, Gallagher said.
“The SEC has been dealing with these issues for a long, long time,” he said.
Fed Chairman Ben S. Bernanke told Congress last week that the five agencies considering the rule wouldn’t meet a July 21 deadline for final action. He didn’t answer directly when asked if the rule would be formally re-proposed.
“We will make sure that firms have an adequate period of time to adjust their systems and comply with the rule,” Bernanke said.
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