Two subcommittees from the U.S. House of Representatives will meet jointly on Wednesday to discuss the effects of the Volcker Rule on jobs and the economy.
The Volcker Rule is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that was passed in the midst of America's financial crisis.
Named after formal Federal Reserve Chairman Paul Volcker, the provision prohibits bank-holding companies from engaging in proprietary trading – a practice that involves the use of clients' money to make personal investments.
The House Committee on Financial Services released a memo last Friday announcing the hearing, noting that the reasoning behind the Volcker Rule is unclear.
According to the memo, proponents of the Volcker Rule have argued that the new restrictions “would better protect taxpayers and help create a more resilient U.S. banking system.” There has been recent confusion, however, as to how or if the provision protects taxpayers from further bank bailouts and financial crises.
Senator Jeff Merkley (D-Ore.), a co-sponsor of the Volcker Rule, has blamed the recent financial crisis on proprietary trading alone. This is contradicted by former Chairman Volcker's statement in the memo that proprietary trading was “not central” to the crisis and that the “Volcker Rule would not have solved the problems posed by AIG or Lehman Brothers.”
The memo further said that no other country has adopted anything similar to the Volcker Rule, leading many opponents to believe that the provision is too complex and could cause more harm than good to the U.S. economy.
Spencer Bachus (R-Ala.), the chairman of the U.S. Committee on Financial Services, said that the provision could cause the U.S. to lose its competitive edge in a global economy.
"If the Volcker Rule's prohibitions are expansively interpreted and rigidly implemented against U.S. institutions while other nations refuse to adopt them, the damage to U.S. competitiveness and job creation could be substantial," Bachus wrote in a November 3 letter to members of the Financial Services Oversight Council.
The debate surrounding the Volcker Rule led federal banking agencies to allow for a comment period that was originally set to end last week but has been extended until March. Despite the extension of the comment period, the Volcker Rule is set to take effect July 21.