House Republicans slam Volcker Rule as regulators seek to finalize measure

Jeb Hensarling

Jeb Hensarling

During a hearing regarding the controversial Volcker Rule, House Republicans blasted the measure as unnecessary and overly complex just one day after the Federal Reserve suggested that regulators were close to finalizing the measure.

“The Volcker Rule is designed to prevent proprietary trading by banks,” Spencer Bachus, the chairman of the House Financial Services Committee, said, according to Banking Investment Consultant. “But no one, not even Paul Volcker himself, argues that proprietary trading was a cause of the financial crisis. The Volcker Rule sticks out as an oddly considered afterthought—a solution in search of a problem.”

The rule, named after Paul Volcker, the former chairman of the Federal Reserve, would prohibit banks from engaging in proprietary trading and limit bank investment in private equity funds.

Regulators first detailed their plans to implement the rule late last year, and some financial institutions have since said that the plan was overly complicated and would negatively impact the economy. Volcker has also voiced concern regarding regulators’ approach to the rule.

“I think we have all taken note of Chairman Volcker’s statements that, number one, proprietary trading at the commercial banks was not central to the crisis, and that he has expressed concern with the rule bearing his name,” Rep. Jeb Hensarling (R-Texas), who is set to take over as HFSC chairman next year, said, Banking Investment Consultant reports. “I don’t think he’s giving his offspring up for adoption, but he doesn’t seem to be well-pleased with it.”

Regulators had planned to finalize the rule by year’s end, but progress on the rule has been stalled by the large number of comments received in response to the proposal.

Ben Bernanke, the chairman of the Fed, said that regulators hope to finalize the rule by early 2013. Hensarling said, however, that the number of concerns raised in response to the rule proposal should indicate that the agencies should proceed with caution.

“As the vice chairman of this committee, I have noted not a few, not hundreds, but literally thousands of negative comments to have either arrived to this committee or to regulators from entities that are supposedly not negatively impacted,” Hensarling said, according to Banking Investment Consultant.

Democrats have largely expressed support for the measure, pointing to massive trading losses by JPMorgan Chase last spring as evidence to support the rule’s implementation.

“I understand the difficulty, but I do want to say in defense of the regulators that they are in some sense damned if they do and damned if they don’t,” Rep. Barney Frank (D-Mass.), the outgoing ranking member of the HFSC and an architect of Dodd-Frank, said, Banking Investment Consultant reports. “If they were to go ahead with a proposal generated among themselves, put it out there for comment, and then adopt it basically unchanged, they’d be legitimately criticized for not listening to the people. When, as they now did, they listened to a very large number of comments and seek to deal with them and improve the rules, then people complain it’s taking too long.”

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