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:

• This rulemaking would have a broad impact on our nation’s financial markets and companies in all sectors of the economy that rely on well-functioning markets. Therefore, it is critical that the agencies carefully examine the economic consequences of their actions and adopt sensible regulations.
• We believe that the proposed regulations would undermine liquidity in the markets by curtailing necessary and beneficial activities such as market making and underwriting. The statute purposefully excluded market making and underwriting from the scope of the Volcker Rule requirements, but the [Notice of Proposed Rulemaking] fails to give full effect to the intent of Congress. The reduced liquidity that will result from these restrictions will increase borrowing and capital costs for businesses, thereby preventing companies from expanding operations, hiring additional employees, and introducing new products and services.
• [A] recent study by Oliver Wyman concludes that the proposed regulations may increase the cost of borrowing for companies by $12 to $43 billion dollars each year. In addition, companies may experience an additional $7 to $11 billion in increased transaction costs each year. For their part, investors may lose as much as $1000 per household, amounting to a total loss of between $91 and $304 billion. At a time when the global economy remains in a precarious position, these restrictive measures promise to handcuff U.S. companies from serving as economic engines towards a brighter future.

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.

• San Francisco Chronicle, "Volcker Rule Faces Critics as Effective Date Nears"
• Allentown Morning-Call, "New rule to limit trading by banks sparks heated lobbying battle" (Is submitting a comment letter "lobbying?" Suppose so.)
• New York Times, "At Volcker Rule Deadline, a Strong Pushback From Wall St."
• Dealbook column, New York Times, "The Volcker Rule and the Costs of Good Intentions"
• Dealbook column, New York Times, "Volcker Rule Stirs Up Opposition Overseas"
• Bloomberg, "Volcker Rule Slammed by Biggest Dollar Borrowers: Canada Credit"

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.”