WASHINGTON Republicans in the House of Representatives are pressuring regulators to delay implementation of the controversial Volcker rule, which bans banks from trading with their own funds.
On Thursday Texas Republican Randy Neugebauer released a letter signed by 121 lawmakers, including four Democrats, that seeks the delay and requests that regulators ask for more public comment before issuing a final rule.
Under the 2010 Dodd-Frank financial oversight law, enacted in response to the 2007-2009 financial crisis, the Volcker rule is supposed to go into effect in July 2012. The letter does not specify how far beyond this date regulators should delay implementing the trading crackdown.
"Initial reports from asset managers, mutual funds, pension plans and other stakeholders suggest that the rule, as drafted, would result in higher borrowing costs for American businesses, thereby impacting economic growth and job creation," the lawmakers wrote in a December 20 letter addressed to the heads of the Federal Reserve, Securities and Exchange Commission, Commodity Futures Trading Commission, Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency.
These agencies, with the exception of the CFTC, in October released a proposed framework for implementing the Volcker rule and are seeking public comment through January 13.
The lawmakers asked that this comment period be extended and that before a final rule is issued regulators release a second proposal for comment.
The Volcker rule was one of the most intensely lobbied parts of Dodd-Frank as it moved through Congress and those efforts have now shifted to the regulators who are responsible for putting it into practice.
The Volcker rule would prevent banks that receive government backstops like deposit insurance from making risky trades with their own funds in securities, derivatives and other financial products. It was named for former Fed Chairman Paul Volcker, who championed the measure.
The rule would also prohibit banks from investing in or sponsoring, beyond a small amount, hedge funds or private equity funds.
It would have the most impact on large banks such as Goldman Sachs and Morgan Stanley.
Neugebauer heads the House Financial Services Committee's oversight subcommittee. Earlier this month the full committee's chairman, Spencer Bachus, asked regulators to provide more time for feedback and to appear at a January 18 hearing on the rule.
Banks, through their lobbying groups, are also pressuring regulators to extend the period for comments.
Republicans and banks have both seized on the CFTC's failure so far to release a proposal as a reason for delaying implementation of the rule.
The agency is expected to unveil its proposal next month and CFTC Chairman Gary Gensler has said it will be similar to what the group of other regulators released in October.
Republicans and the banks have argued the delays are needed because the Volcker rule is complex and could wreak havoc on markets and the economy if enacted in a haphazard way.
Supporters of the rule have dismissed this argument as an attempt by banks to weaken the rule before it goes into effect.
"Industry's claims that the Volcker Rule will 'reduce market liquidity, capital formation and credit availability, and thereby hamper economic growth and job creation' disregard the fact that the financial crisis did more damage to those concerns than any rule or reform possibly could," Dennis Kelleher, president of Better Markets, wrote in a December 9 letter to regulators.
His group is a nonprofit organization that supports the Volcker rule.
(Reporting By Dave Clarke, editing by Matthew Lewis)