Paul Volcker joins Volcker Rule fight

Paul Volcker

Former Federal Reserve Chairman Paul Volcker joined the debate in defense of the Volcker Rule, arguing in a letter to U.S. regulatory agencies that concerns surrounding the proposed rule are exaggerated.

Named after the former economist and under-secretary of the U.S. Treasury, the Volcker Rule prohibits financial institutions from engaging in proprietary trading and has been a hotly debated provision of the 2010 Dodd-Frank Act. Critics argue that the complex legislation could stifle U.S. growth and competitiveness, while proponents claim that such a provision is necessary to avoid a financial crisis, like that in 2008, the Hill reports.

Volcker dismissed criticisms of the rule in an eight page public letter to U.S. regulators. Volcker said that because banks are backed by the government through agencies like the Federal Deposit Insurance Corporation, the government should guide them in providing services to communities instead of seeking increased profits.

“The continuing explicit and implicit support by the federal government…can be justified only to the extent those institutions provide essential financial services,” Volcker wrote, according to the Hill. “Proprietary trading…does not justify the taxpayer subsidy.”

Volcker also mentioned that the challenges that lie ahead of regulators in terms of implementing the rule are complex but are made even more so by the sheer complexity of the U.S. financial system. He said that while many institutions have voiced a dispiriting outlook for the provision, it will likely affect fewer institutions than previously estimated, according to the Hill.

Volcker’s letter was just one of many that poured in to regulators on Monday, the deadline for public comment on the measure. The final ruling, if the current proposal is amended, will take effect on July 21.

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