Foreign and domestic banks file letters against the Volcker Rule

Goldman Sachs Group Inc., JPMorgan Chase & Co., Bank of America Corp., as well as many other agencies, including foreign banks and governments, filed letters on Monday against the Volcker Rule, claiming that a U.S. ban on proprietary trading increases costs and risks to investors.

“The proposal will severely limit banking entities’ ability to hedge their own risk, thereby increasing rather than decreasing the risk to banking entities and the financial system,” the Clearing House Association, the American Bankers Association, the Securities Industry and Financial Markets Association and the Financial Services roundtable said in a joint 172 page letter, according to Bloomberg.

The comment letters opposing the Volcker Rule streamed in on Monday ahead of the midnight deadline for comment. In addition to the 172 page letter, Goldman Sachs’ letter was expected to come in at about 50 pages, Politico reports.

One letter on behalf of a large group of municipal trade associations argued that the Volcker ban would effectively create an exemption for municipal obligations that is too narrow.

“If made final, the definition of the proposed rule would exclude thousands of municipal securities, disrupting the municipal market and raising costs for state and local governments,” the letter said, Politico reports. “Given that one of the principal purposes behind the Volcker Rule is to mitigate risk, the lack of uniformity would unfairly treat economically similar debt instruments differently from one another for the purposes of municipal securities trading.”

Since its inception, the Volcker Rule has been the subject of controversy. While the ban is intended to prohibit banks from engaging in proprietary trades and market-making, domestic critics of the ruling have argued that the ban is too expansive and undermines U.S. competitiveness. Foreign banks and governments have also opposed the rule and its possible effect on U.S. subsidiaries and foreign bond markets.

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