U.S. plans to ban proprietary trading by banks won’t apply to foreign banks operating outside the country, former Federal Reserve Chairman Paul Volcker said.
“The law and concept is quite clear,” Volcker told reporters in Abu Dhabi today. “Proprietary trading by foreign banks in the United States is prohibited. Foreign banks outside the U.S. are not covered.”
Central bankers and regulators globally have expressed concern that the so-called Volcker rule, which would apply to the U.S. operations of overseas banks, may be extended to firms’ operations across the rest of the world. Michel Barnier, the European Union’s financial services chief, said on Feb. 23 the proposed ban may cause problems for banks in some of the largest economies in Europe.
The “technical application” of the so-called Volcker rule “to the operations of non-American banks has raised some angst,” Volcker said.
The Volcker rule, included in the U.S. Dodd-Frank Act scheduled to take effect in July, is aimed at restricting risky trading at banks that operate with federal guarantees.
In a joint letter published Feb. 13, the world’s largest banks demanded changes to the proposed ban on proprietary trading. They said the rule would increase risk, raise investor costs, hurt U.S. competitiveness and be vulnerable to court review. Group of 20 leaders haven’t endorsed the rule, which exempts U.S. government debt though not non-U.S. government bonds.
These concerns “I hope can be satisfactorily resolved” in a review of the proposals, Volcker said. The rule doesn’t restrict market making by banks and the underwriting of securities, he said.