Spencer Bachus, the chairman of the House Financial Services Committee, and Jeb Hensarling, the current vice chairman of the HFSC, sent a letter to banking regulators this week warning the agencies to delay implementation of the controversial Volcker Rule.
Bachus and Hensarling said in the letter that the rule will have a substantial impact on capital formation and liquidity, as well as credit availability for businesses and consumers. Additionally, they warned that the Volcker Rule could put U.S. firms at a disadvantage because no other nation has imposed similar rules.
“Given that the costs that the Volcker Rule will impose on the U.S. financial system will more than likely outweigh any benefits the rule has to offer, it is absolutely essential that you carefully consider how you will implement it and that your agencies be transparent about the process by which you issue the final rule,” Bachus and Hensarling said in the Nov. 29 letter to the Federal Reserve Board of Governors, FDIC, Commodity Futures Trading Commission, Securities and Exchange Commission, and Office of the Comptroller of the Currency.
Bachus and Hensarling said that regulators have not been transparent about their intentions to implement the Volcker Rule, adding that the resulting confusion surrounding the rule has “only made it that much more likely that whatever final rule [the agencies] issue will compound the regulatory uncertainty that continues to plague our economy.”
The contentious rule mandated by the 2010 Dodd-Frank Act banks the practice of proprietary trading, in which banks engage in risky investments with client funds.
Bachus and Hensarling expressed concern regarding media reports that the regulators could issue three different versions of the rule, calling the ambiguity “extremely troubling.”
“Competing versions of the Volcker Rule will make it all the more difficult for market participants to know what their obligations are and how to comply with them, particularly if they find themselves subject to competing obligations enforced by different regulators,” Bachus and Hensarling said. “Given the time that it will take for you to agree on one version of the Volcker Rule as well as the tremendous uncertainty that market participants face in trying to anticipate what the final rule will look like, we respectfully suggest that the Federal Reserve Board delay the Volcker Rule’s effective date until two years after the date on which the final rule is promulgated.”
Hensarling was recently endorsed by the House Republican Steering Committee to take over as chairman of the HFSC when Bachus departs from the committee. Bachus has reached the end of his term limit, and Hensarling is expected to be confirmed in a party vote.