Federal Reserve Chairman Ben S. Bernanke said the central bank and other regulators won’t meet a July deadline to complete work on the so-called Volcker rule limiting proprietary trading at banks.
The ban is set to take effect by July 21 even if the rule-making is still in progress. It would include a two-year transition period; the Fed could issue one-year implementation extensions on a case-by-case basis after that.
“I don’t think it will be ready for July,” Bernanke said in response to a question during testimony today to the House Financial Services Committee in Washington. “Just a few weeks ago we closed the comment period, we have about 17,000 comments, we have a lot of very difficult issues to go through, so I don’t know the exact date.”
The rule is named for former Fed Chairman Paul Volcker, who championed it as an adviser to President Barack Obama. It seeks to ban banks from proprietary trading 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.
The proposal is one of the most contentious provisions of the 2010 Dodd-Frank Act, which required the ban on proprietary trading to take effect by July 21.
Representatives from the world’s largest banks have said the proposal would increase risk, raise costs for investors and be vulnerable to legal challenge.
Representative Michael Grimm, a New York Republican, asked Bernanke if the Fed would re-propose the rule. The Fed chairman didn’t answer directly.
“We will make sure that firms have an adequate period of time to adjust their systems and comply with the rule,” Bernanke said.
“I’m assuming then you are not going to be strictly enforcing, obviously, a rule that is not in place yet?” Grimm said.
“Obviously,” Bernanke said.
A 298-page proposal released by U.S. regulators in October included more than 1,300 questions for affected banks to consider during the comment period that closed Feb. 13.
Bernanke said the “most difficult distinction” in the rule is the difference between proprietary trading and market making. “We will need to develop metrics and other criteria to distinguish those two types of activities,” Bernanke said.