ABA, other trade groups say Volcker Rule liquidity losses could reach $300 billion

The American Bankers Association, along with three other trade groups, issued a comment letter to the Commodity Future Trading Commission on Monday calling for a reproposal of the Volcker Rule ban on proprietary trading.

The trade groups included the Financial Services Roundtable, the Clearing House and Securities Industry and the Financial Markets Association. In the letter, the groups maintain that the Volcker Rule proposal’s costs “substantially outweigh the benefits.”

The letter cites a SIFMA study in which the rule’s effect on liquidity was examined, revealing that liquidity losses to investors as a result of the Volcker Rule could reach upwards of $300 billion. The letter also says that the CFTC “should not equate status as a ‘swap dealer’” with market-making activities.

Critics of the proposal say that the definitions contained within the Volcker Rule are overly broad, arguing that the rule does not allow for distinction between important market-making activities and proprietary trades—or the use of client funds to make risky trades.

The groups also mention the many comment letters that have already been received on the rule and call for a reproposal, saying that taking all of the comments into consideration would be much more difficult in developing the final rule.

“Incorporating these comments into an already complex and flawed rule may lead to further unintended consequences and is likely to result in a proposal sufficiently different such that market comment would be useful,” the letter said.

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