U.K. Should Shun ‘Difficult’ Volcker Rule, Says John Vickers

U.K. banks shouldn’t be restricted from proprietary trading in a way similar to the U.S.’s so-called Volcker rule because it would be too complicated to police, said John Vickers, chairman of Britain’s Independent Commission on Banking.

The distinction between market making and a bank trading with its own money is ill-understood and would sap too much time from regulators, Vickers, 54, told the U.K.’s Parliamentary Commission on Banking Standards today. Shielding banks’ consumer units from their investment banking operations as recommended by the ICB is preferable, he said.

Federal Reserve Chairman Paul Volcker, 85, who helped devise the U.S. rules, told Parliament in October that Vickers’s own proposals will be difficult to maintain and financial institutions will seek to unwind separations over time. The Treasury has said it plans to pass legislation relating to Vickers’s plans by 2015 and fully implement them by 2019.

“If one had ring fencing and Volcker there would be two boundaries to police,” Vickers said. “Volcker draws the line in a very difficult, almost excruciatingly difficult, place.”

If proprietary trading is banned from banking, it could “move elsewhere” where there may be fewer rules to govern it, Vickers said. Banks holding bonds and shares to sell to clients, so-called market making, is indistinguishable from proprietary trading, where a firm takes its own positions in securities for its own gain, he said.

It would be “very difficult” for a regulator to tell the difference between market making and proprietary trading, Vickers said. “People at the top of banks themselves have not known what was going on in terms of the kind of trading, and the regulator is at a disadvantage even relative to them.”

The Volcker rule, part of the 2010 Dodd-Frank Act, is intended to prevent deposit-taking banks from putting depositors’ money at risk. The Fed in April said banks have until July 2014 to fully conform their activities and investments to the Volcker restrictions.

-- Editors: Jon Menon, Steve Bailey