* Barnier questions why rule only exempts U.S. govt debt
* Other countries have raised similar concerns
* Volcker says these concerns are overblown
By Dave Clarke
WASHINGTON, Feb 9 Michel Barnier, the
European commissioner in charge of financial
regulation, wrote U.S. regulators earlier this week raising
concerns about the impact that a ban on most proprietary trading
by banks could have on financial markets outside the United
Barnier said that a proposed U.S. rule implementing the ban
applies too broadly to foreign banks and markets and should
instead focus only on trading activities that occur in the
He raised the concern that the proposal would make trading
markets less liquid, which can raise the costs of borrowing and
increase market volatility.
He also complained that while the ban exempts trades
involving U.S. Treasuries, it does not afford a similar
treatment to debt issued by other governments.
"It is not clear to us why this exemption should be limited
to trade in U.S. government bonds." he wrote to regulators in a
letter dated Feb. 8. "All government bonds have similar features
Barnier's comments echo concerns raised by officials in
other countries, including Bank of Canada Governor Mark Carney
The proprietary trading ban is known as the Volcker rule,
after former Federal Reserve Chairman Paul Volcker, who
championed the idea.
It prohibits banks, which receive federal backstops like
deposit insurance, from trading for their own profit in
securities, derivatives and certain other financial instruments.
It will also prohibit banks from having more than a minimal
ownership interest in hedge funds or private equity funds.
It was included as part of the 2010 Dodd-Frank financial
oversight law, enacted in response to the 2007-2009 financial
Volcker in an interview with Reuters last month dismissed
the concerns raised by foreign regulators about how their debt
is treated under the crackdown.
"I don't think it's an important issue," he said. "If we do
it for the Canadians are we going to do it for the Greeks too,
the Spanish, and, I don't know, Somalia or something? They've
got banks. They don't have to rely on proprietary trading in the
U.S. regulators in October released a proposed rule on how
to implement the trading crackdown and comments are due Feb. 13.
Proponents of the rule contend banks that receive government
backstops through deposit insurance or access to loans from the
Federal Reserve should not be making risky trades that could put
taxpayer money at risk.
The banking industry has hotly opposed the crackdown,
arguing that it will freeze up trading markets because it will
be too difficult to determine whether banks are making trades
for their own profit or to create markets for their customers as
is allowed under the Volcker rule.