U.S. regulators said they weren’t surprised by the volume of the critical comments filed by financial companies and foreign governments over the Volcker rule, which bars U.S. banks from trading for their own account.
Acting Comptroller of the Currency John Walsh and Acting Federal Deposit Insurance Corp. Chairman Martin J. Gruenberg said in interviews today that concerns raised over the rule were due to its complexity and to its essential purpose -- the elimination of proprietary trading by U.S. banks.
The rule “goes to what’s been a significant activity for the major financial companies,” Gruenberg said in an interview in Nashville, Tennessee, where he addressed the national convention for the Independent Community Bankers of America.
The FDIC and OCC are among five regulatory agencies required to draft and implement the rule, which was named for former Federal Reserve Chairman Paul Volcker, by July 21. After receiving more than 17,000 comments about the initial proposal, Fed Chairman Ben S. Bernanke and Securities and Exchange Commission Chairman Mary Schapiro said regulators may miss the deadline.
Goldman Sachs Group Inc. (GS), Morgan Stanley (MS) and JPMorgan Chase & Co. (JPM) are among the institutions that filed comments about the scope of the rule’s impact on activities such as market-making and hedging. Many of the commenting institutions complained that those activities weren’t included in the 2010 Dodd-Frank Act, the legislation that requires U.S. regulators to write hundreds of rules governing the financial industry.
A New Framework
“I understand the concerns, but it’s a new framework and we have to put it into place,” Walsh said in an interview. “There are a lot of people who just don’t like the basic idea of the rule and I think a certain amount of the criticism is from that quarter.”
The FDIC has had an open dialog with institutions about its other Dodd-Frank duties, including on a joint rule with the Fed that requires the largest banks to draft and file plans to protect the broader economy in the event of their collapse, Gruenberg said. Regulators may ask firms to make changes or shed businesses if the plans are deemed inadequate.
The plans for banks with more than $250 billion in non-bank assets are due to the agency and the Fed by July, and regulators will probably ask for more information after the initial filing, he said, adding that there would be a “considerable process of engagement” after the plans are submitted.
Gruenberg, the agency’s former vice chairman and President Barack Obama’s nominee as chairman of the agency, said it is “too early” to make a judgment on whether banks will be required to make changes in their business models.
“At some point we will reach an end to the process and the plan will either satisfy the requirements of the law or the company may be asked to make changes,” Gruenberg said. “We’re not near that point yet.”
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