Wednesday, August 08, 2012

Chairman Bachus Seeks Alternative to Proposed Regulations Implementing Dodd-Frank Volcker Rule

In October of 2011, the SEC, CFTC and the banking agencies issued a joint notice of proposed rulemaking to implement the Dodd-Frank version of the Volcker Rule. In a clear sign of the trouble regulators are having, noted House Financial Services Chair Spencer Bachus (R-ALA), their joint proposal runs 300 pages and asks more than 1,300 questions of market participants on nearly 400 topics. If regulators implement the Volcker Rule in its current form, warned the Chairman, the repercussions will be devastating to the economy and will undermine the nation’s ability to compete and make it harder for Main Street businesses to raise capital so they can grow and create jobs.  Therefore, it is imperative to consider legislative alternatives, he said.  

Thus, Chairman Bachus is asking investors, industry professionals and the public to offer their ideas and suggestions on how to formulate a less burdensome legislative alternative to the proposed regulations implementing the Volcker Rule provisions of the Dodd-Frank Act. Vowing to develop a better legislative alternative to the Volcker Rule as presently codified in Section 619 of the Dodd-Frank Act, Chairman Bachus has set a deadline of September 7 for the Committee to hear from interested parties.  The deadline will give Committee members the opportunity to evaluate the comments and legislative recommendations in preparation for a hearing that is being planned for the fall. Since the Volcker Rule was not proposed by President Obama until after the House had already passed its version of the financial regulatory legislation that eventually became the Dodd-Frank Act, observed Chairman Bachus, the upcoming hearing will be the Committee’s first opportunity to consider legislative alternatives.

Section 619 of the Dodd-Frank Act,  popularly known as the Volcker Rule, prohibits U.S. bank holding companies and their affiliates from engaging in proprietary trading and from sponsoring hedge funds and private equity funds.  While the idea sounds simple, noted Chairman Bachus, regulators have had great difficulty writing the regulations implementing the Volcker Rule since there is no bright line that separates proprietary trading from market making, which is exempted from the ban on proprietary trading, and which enables companies to raise funds by issuing equity, or bonds. Finally, he noted that many of the 16,000 comment letters the regulators have received in response to their proposal express concerns about the Volcker Rule’s negative impact on market liquidity, pension plans and retirement accounts.