Bankers Take Aim at Volker Rule

We have consistently questioned the necessity and efficacy of the Volcker Rule and believe that its full repeal is the only way to avoid the harm that it would do to the economy, bank customers, and the banking industry.

The American Bankers Association officially urged repeal of the Volker Rule in a September 7, 2012 letter to Rep. Spencer Bachus, chair of the House Financial Services Committee. Citing the struggles the regulators have had in crafting the rules, the ABA stated that the restrictions on Banks’ proprietary trading contemplated by Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act are unworkable, and ultimately harmful to the banking industry. The ABA also asserts that the Volker Rule relies on poorly defined terms and vague concepts, and fundamentally fails to address its purported objective of prohibiting excessively risky proprietary trading and investment activities.

The ABA lays out several of its specific issues with the Volker Rule, including:

1. Because the rule is applicable to all banks, including community banks and others posing no systematic risk, it is overbroad.
2. Several key terms of the Volcker Rule are ill-defined or overbroad, which has resulted in tortuous and unworkable definitions under the agencies’ proposed rules.
3. No analysis has been performed (nor is it required) to examine the costs versus benefits of the Volker Rule.
4. The Volker Rule, as proposed by the Fed, FDIC, OCC, CFTC, and SEC, has no single interpretive or enforcement authority.
5. Imprecise application of Section 23A of the Federal Reserve Act results misapplication of the intent and purposes of regulating bank affiliate transactions.

In the absence of full repeal, the ABA’s letter proposes an approach for addressing each of the issues it identifies, stressing that a more targeted approach would be both more effective and practical.

We recognize that there are risks in proprietary trading and other financial investments, as there are with all financial activities. We believe, however, that a more targeted, supervisory approach would better address the management of those risks, which through agency oversight could be promptly identified, addressed, and corrected.

Adopting its legislative approach, says the ABA, would not only make the Volker Rule more effective, but would also avoid potential unintended damage to areas such as municipal securities, venture capital, and foreign sovereign debt.