Two top Republican Congressmen have asked regulators to further delay the so-called Volcker rule that would ban U.S. banks from proprietary trading.
Representatives Spencer Bachus of Alabama and Jeb Hensarling of Texas sent a letter to regulators today requesting a delay of the rule’s effective date for two years after the final version is issued. They cited concerns about disagreements among regulators and a lack of transparency in the rule writing. Bachus is the House Financial Services Committee chairman; Hensarling will succeed him in the next Congress.
“Given the time that it will take for you to agree on one version of the Volcker Rule as well as the tremendous uncertainty that market participants face in trying to anticipate what the final rule will look like, we respectfully suggest that the Federal Reserve Board delay the Volcker Rule’s effective date,” the lawmakers wrote.
Regulators expect to finish writing the rule in the first quarter of 2013, according to a person familiar with the process who requested anonymity because the matter isn’t public.
Mary Miller, the U.S. Treasury’s undersecretary for domestic finance, said in a speech on Nov. 16 that “the process is not as easy or simple as any of us would like.”
The process my be further delayed by the departure of the Mary Schapiro as chairman of the Securities and Exchange Commission next month. Until President Barack Obama can confirm a fifth member of the commission, the remaining members face a partisan split that will make controversial rulemaking difficult.
The Volcker rule, mandated by the Dodd-Frank Act of 2010, was the subject of complaints from banking industry groups that it was confusing and potentially harmful. Named for former Federal Reserve Chairman Paul Volcker, an early proponent, the rule is intended to prevent banks, which hold federally insured deposits and can borrow from the Fed at reduced rates, from putting depositors’ money at risk.
The Federal Reserve in April said banks have until July 2014 to fully conform their activities and investments to the Volcker restrictions. The Fed has the authority to further extend the period of compliance beyond July 2014.
The current proposal would ban banks from proprietary trading, with exemptions for trades tied to market-making activities or hedging risk. It also limits banks’ investments in private equity and hedge funds.
Standard & Poor estimated on Oct. 22 that the Volcker rule could cut profit at the largest U.S. banks twice as much as earlier estimates if regulators take a strict stance on limiting proprietary trading. S&P estimated that the proposal could reduce combined pretax earnings for the eight largest U.S. banks by as much as $10 billion annually, up from our initial $4 billion estimate two years ago.
The House Financial Services Committee announced today a Dec. 13 hearing on the rule’s implementation status. In their letter, Bachus and Hensarling said regulators have been “less than transparent” about how they plan to implement the rule. The lawmakers said the lack of transparency has compounded the “regulatory uncertainty that continues to plague our economy.”
Dodd-Frank charges five agencies -- the Office of Comptroller of the Currency, Federal Deposit Insurance Corp., the Commodity Futures Trading Commission, the Federal Reserve Board, and the Securities and Exchange Commission -- to write regulations that implement the rule. The Treasury Department must coordinate the agencies’ rulemaking. Hensarling and Bachus said regulators should “speak with one voice” on Volcker and issue one rule.
“While the Volcker Rule promises little if any benefit, what little benefit it does promise will not be realized if regulators further fragment financial markets and ratchet up the costs of compliance for market participants by issuing multiple versions of the Volcker Rule,” the lawmakers wrote.
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