U.S. regulators will extend the comment period for the so-called Volcker rule, giving lawmakers and banks more time to seek changes in the proposed proprietary trading ban required by the Dodd-Frank Act.
The comment deadline, initially set for Jan. 13, will be pushed back 30 days to Feb. 13, according to a joint statement released today by the four agencies that issued the proposal in October. The change may extend the comment period until a vote by the Commodity Futures Trading Commission, the last of five agencies required to approve the measure. CFTC Chairman Gary Gensler said on Dec. 20 that the vote may come next month.
The proposed rule, named for former Federal Reserve Chairman Paul Volcker, was included in the regulatory overhaul to rein in risky trading by banks that benefit from deposit insurance and Fed borrowing privileges. The Fed, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and Securities and Exchange Commission released a joint notice of proposed rulemaking for the measure that would take effect on July 21, with a two-year transition period.
“The current proposal twists a simple concept into an overly complex and burdensome regulation,” Representative Randy Neugebauer said yesterday in a letter urging a delay. “Going significantly beyond Congressional intent, this proposal will make it difficult for banking entities to manage risk prudently,” the Texas Republican said in the letter signed by 121 House lawmakers, including four Democrats.
Neugebauer sought a 30-day extension and an interim proposed rule reflecting comments from banks and the CFTC.
Impact on Banks
The proposed rule would ban banks from making trades for their own accounts while allowing them to continue short-term trades for hedging or market-making. It also would limit banks’ investments in private-equity and hedge funds.
Industry groups and lawmakers cited the complexity of the proposal and the lack of coordination with the CFTC in seeking the comment-period extension. Banks including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley have shut or made plans to spin off proprietary-trading groups to prepare for the rule. State Street Corp.’s European division said this month that it stepped down as a market maker for U.K. government bonds, citing the Volcker rule as a reason.
“Ultimately, the significance of any final rule for American businesses, and by extension American households, cannot be overstated given the direct impact on the U.S. capital markets, which today are the deepest and most liquid in the world,” the lawmakers wrote in the letter, which said the economic impact would be $45 billion for corporate bonds alone.
Representative Spencer Bachus, the Alabama Republican who leads the House Financial Services Committee, requested a similar extension in a Dec. 7 letter, noting that some agencies had refused to testify on the issue at a hearing originally set for Dec. 13 and saying his panel would be unable to reschedule the hearing until after the Jan. 13 comment deadline.
In a Nov. 30 letter, trade groups including the American Bankers Association and the Securities Industry and Financial Markets Association asked for a 90-day extension.
“Our members are deeply concerned about the potential impact of the proposal on capital formation, markets and liquidity for a range of asset classes and on the safety and soundness of banking entities and the businesses in which they engage,” five lobby groups said in their letter.
The extension was opposed by groups including Better Markets Inc., a nonprofit research organization that promotes Dodd-Frank regulations.
‘Weak as Possible’
“The financial industry worked the entire legislative process in 2009 and 2010, first to prevent the Volcker rule from being included and then to make it as weak as possible,” Dennis M. Kelleher, president and chief executive officer of Better Markets, wrote in a Dec. 9 letter to regulators. “By any definition of reasonableness, the industry has had ample time to make their views known.”
The industry groups found common ground with former FDIC Chairman Sheila Bair, who cited the complexity of the proposed rules in urging regulators to scrap the current plan.
“The regulators should think hard about starting over again with a simple rule based on the underlying economics of the transaction, not on its label or accounting treatment,” Bair said at a Senate Banking subcommittee hearing on Dec. 7. “If it makes money from the customer paying fees, interest and commissions, it passes. If its profitability or loss is based on market movements, it fails.”