Bank of Japan Deputy Governor Kiyohiko Nishimura said the Volcker rule may impair the liquidity of sovereign debt markets outside the U.S.
The rule ‘could adversely affect the liquidity of overseas sovereign debt markets,’’ Nishimura said today in a speech in Washington. “Some market participants seem uncertain as to how the Volcker rule would impact the sovereign debt markets as well as funding issues.”
While Nishimura said he agrees with the fundamental rationale of the Volcker rule, he urged U.S. policy makers to be careful in implementing the regulations and pay attention to the liquidity of sovereign debt markets.
The proposal, requiring a ban on proprietary trading at banks and planned to be in place by July, is one of the most contentious provisions of the overhaul of U.S. financial regulation enacted in 2010 known as the Dodd-Frank act. A 298-page proposal released by U.S. regulators in October included more than 1,300 questions for banks to consider during the comment period.
Officials from Canada, Japan, the United Kingdom, and the European Banking Federation have said in letters to the U.S. Treasury Department and other regulators that the measure would harm global liquidity and international cooperation. Group of 20 leaders have not endorsed the rule.
The Dodd-Frank act exempted U.S. government securities from the proprietary trading ban. Foreign sovereign debt isn’t exempted.