“The far-reaching consequences of the Volcker Rule demand a thorough analysis of the costs and benefits of the current statutory text, the intended goals of the Volcker Rule, and potential alternatives to the Volcker Rule to better achieve those goals without triggering consequences that Congress did not intend”, the letter said. “We believe that the many problems with the Volcker Rule identified by a wide variety of stakeholders demonstrate the need for a substantive re-evaluation by Congress, and we strongly support the Chairman’s initiative to do so.”
In its letter to Chairman Bachus, SIFMA urged Congress to explore one wholesale alternative to Volcker that relies on already proposed capital rules and regulations that are under consideration and being implemented as a result of Basel III and other initiatives, rather than activities restrictions. A risk-based framework with an effective supervisory overlay, under which higher capital charges would apply to riskier activities as determined by the regulators, would be a more targeted and effective means of addressing the concerns underlying the Volcker Rule.
While SIFMA supports a comprehensive re-evaluation of the Volcker Rule, including the risk-based approach, should Congress determine to retain the Volcker Rule framework as enacted, SIFMA believes that several modifications to the existing statute are necessary to achieve its goals without harming the ability of banking entities to continue to provide client-oriented financial services. Those modifications include:
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Reverse the presumption that all short-term principal trading is impermissible, and provide a targeted definition of “proprietary trading” and clear safe harbours;
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Eliminate the “near-term demands” condition on market-making exemption;
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Clarify the exemption for risk-mitigating hedging;
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Define “hedge fund” and “private equity fund" more narrowly;
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Modify Volcker to apply only to insured depository institutions and their holding companies;
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Require a cost-benefit analysis before any implementing regulations.
Full letter
© SIFMA - Securities Industry and Financial Markets Association
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