Volcker Rule to be refined despite opposition

Gary GenslerTop U.S. regulators announced that the Volcker Rule will be refined despite cries from the opposition to dispose of the measure.

Two House subcommittees met jointly on Wednesday to discuss this provision of the Dodd-Frank Act that prohibits financial institutions from engaging in proprietary trading.

Since its inception, the Volcker Rule has taken fire from all sides, with many calling the measure too broad and complex.

Federal Reserve Governor Daniel Tarullo testified before the House committees on Wednesday.

Governor Tarullo called the measure “quite broad” and said that the new regulation would “'undoubtedly affect' banks' ability to trade securities and derivative instruments,” Market News International reports.

Financial institutions have lobbied fiercely against the measure, claiming that the rule would bring disaster to the economy and cause the U.S. financial industry to lose its competitive edge in a global market.

A study released by Oliver Wyman, an industry consulting firm, estimates that U.S. financial institutions could lose $315 billion because of the Volcker Rule.

International financial partners are also worried about how the Volcker Rule will affect U.S. subsidiaries overseas.

Japanese regulators sent a letter to the U.S. government last week asking for consideration in implementing the Volcker Rule, the Wall Street Journal reports. Japanese banking institutions are concerned about how the measure will affect trading in Japanese government bonds.

Though many oppose the Volcker Rule because of its complexities, supporters say that implementing such a rule is necessary to prevent proprietary trading and a repeat of America's most recent financial disaster.

Proprietary trading has been cited by supporters as the reason for the economic downturn, though Governor Tarullo said in a C-SPAN broadcast that he did not believe proprietary trading was at the core of the crisis.

Regulators decided in December to put a 30 day extension on the measure's comment period, inviting further public feedback. Chairman Gary Gensler of the U.S. Commodity Futures Trade Commission, however, said that its goal is to avoid hasty implementation of the Volcker Rule without further revision.

“As with all of our rules, the CFTC is working to implement the Volcker Rule in a thoughtful, balanced way – not against the clock,” Gensler said, according to Bloomberg.

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