Banks across Europe argued in a confidential lobbying paper that the measure would be “detrimental” to GDP growth and would have a “negative effect on banks’ ability to serve the real economy,” according to City A.M.
The lobbying paper was drafted by Europe’s largest banks for submission to the Liikanen Commission, a Brussels task force that is charged with determining whether to institute the financial regulations under the United Kingdom’s Vickers Commission or the U.S. Volcker Rule.
The Volcker Rule, a provision of the 2010 Dodd-Frank Act, prohibits banks from engaging in proprietary trading—or risky investments with client deposits—and restricts the institutions to hedging risk only.
Financial institutions in the U.S. and abroad have warned regulators against implementing the Volcker Rule, saying that the rule would be difficult to implement due to the blurred line between market-making and proprietary trading.
“This can lead to possible avoidance but also excessive discretion by supervisors to define scope,” the paper reads, according to City A.M.
European banks also said that the Volcker Rule will damage market liquidity and “does not really address the moral hazard issue related to government guarantees.” The banks instead advise regulators to focus primarily on living wills—emergency plans to break down and liquidate failing financial institutions, City A.M. reports.
Lenders are also prepared to persuade the task force that structural reform is unnecessary and would ultimately harm “the effective functioning of the European financial sector and hence the European economy,” according to City A.M.