Business Roundtable this week amassed numerous criticisms when it submitted its comment letter to the four agencies responsible for implementing the so-called Volcker Rule, a section of the Dodd-Frank Act meant to ban proprietary trading and investments in private equity and hedge funds by commercial banks.
The letter perforce deals with complicated issues of financial regulation, but also makes key points quite clearly:
The Wall Street Journal took a tough editorial stance against the regulation today, "The Volcker Diversion":
[One] man's proprietary trade is another man's customer service, and still another man's hedge against credit risk. Lawmakers didn't have confidence in their ability to sort out the differences, so after carving out a few explicit loopholes, Messrs. Dodd and Frank asked the bureaucrats to fill in the rest of the blanks.
Now even Mr. Volcker seems to be conceding that this sausage can only be made if more bankers are invited to join the federal cooks in the kitchen. Expect complexity, disparate treatment, regulatory arbitrage, higher costs and—perhaps the most dangerous Washington creation of all—the illusion of safety that only regulation can provide.
Opposition from banks, business and policymakers is broad and strong, as well, as reported this week.
And, from Bloomberg, "U.S. Volcker Rule Could Hurt Liquidity, Bipartisan Senators Say":
The proposed rule, as drafted, could adversely affect Main Street businesses by reducing market liquidity and increasing the cost of capital,” the senators said in a letter today. “There is evidence that this is already beginning to occur.”
The letter was signed by Democratic Senators Tom Carper of Delaware, Mark Warner of Virginia and Chris Coons of Delaware; and Republicans Pat Toomey of Pennsylvania, Mike Crapo of Idaho and Scott Brown of Massachusetts. The prop-trading ban is part of the Volcker rule, named after former Fed Chairman Paul Volcker, within the 2010 Dodd-Frank Act overhaul of Wall Street rules. The ban was backed by lawmakers seeking to limit risky trading at banks that operate with federal guarantees.
“As market-makers reduce or eliminate inventory, liquidity is reduced and trading spreads widen,” the senators said in the letter. “This will increase trading costs paid by investors, thereby reducing returns for investors large and small alike.”
Topics: Financial Regulatory Reform.
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