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Fed’s Raskin Sees High Costs From Volcker Rule Exemptions

Federal Reserve Governor Sarah Bloom Raskin said regulators should consider withholding exemptions to the Volcker rule’s prohibition against proprietary trading when they are sought by federally insured banks.

“Certain capital market activities for federally insured banks should not be supported by vast amounts of public and private expenditure,” Raskin said today in the text of remarks for a speech in Boulder, Colorado.

The Volcker rule, part of the Dodd-Frank overhaul of financial regulation, limits proprietary trading while allowing exemptions for hedging and market-making. The benefits to the exemptions may be limited because community banks that engage in traditional banking are the firms providing “true liquidity,” Raskin said.

“Liquidity is not an inherent public benefit that justifies the expenditure of significant compliance, oversight, examination and enforcement costs,” Raskin said at the Graduate School of Banking at Colorado. She warned of “flawed business models that create misaligned incentives that lead to what I believe are low-road outcomes.”

Raskin, who was formerly Maryland’s chief banking regulator, didn’t comment on the outlook for the U.S. economy or monetary policy. She was appointed to the Fed in 2010.

To contact the reporter on this story: Aki Ito in San Francisco at aito16@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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