The Volcker Rule, which prohibits banks from engaging in proprietary trades, is set to take effect on July 21, but Federal Reserve Chairman Ben Bernanke announced in late February that the rule is unlikely to be ready by that date. Frank argued that regulators need to clarify well before July “what, if any, compliance will be required between the statutory effective data and the date when a rule is issued,” DealBook reports.
Federal Reserve Governor Daniel K. Tarullo shared similar concerns, telling a Senate committee on Thursday, “I think it’s incumbent on all the regulators to provide some guidance for firms,” and saying that there is a “real possibility” that regulatory agencies could miss the July deadline, according to DealBook.
Under pressure from financial institutions and consumer advocacy groups, regulators have rushed to streamline and finalize the Volcker Rule. A 300-page draft of the Volcker Rule was released last fall to the disappointment of groups who had hoped for a stronger piece of legislation.
Consumer groups argued that the legislation was weak, while Wall Street groups waged war on the draft, saying that the fledgling rule was an overly complex proposal that would cripple American businesses, DealBook reports.
Frank agreed that the proposal is overly comprehensive and complicated.
“The agencies tried to accommodate a variety of views on implementation, but the results reflected in the proposed rule are far too complex, and the final rules should be simplified significantly,” Frank said, according to DealBook.
The debate surrounding the Volcker Rule has primarily centered on the definition of proprietary trading. Some financial institutions are concerned that the area between proprietary trading and market-making practices, where banks retain securities with future plans to sell them to customers, is a murky divide.
Frank said that after the two-year compliance period, regulators should be receptive of changes to the rule, which “will be an opportunity for both the regulators and the regulated to learn from actual experience and make appropriate adjustments in the enforcement regime,” DealBook reports.