Opposition to Volcker rule is growing more vocal

When the Dodd-Frank Act was signed into law a year and a half ago, regulators knew some rules would be opposed by the banking industry and members of Congress.

This was the case with regard to the debit interchange rule, which limited debit interchange fees to about 7-12 cents per transaction, down from the current average of 44 cents per transaction. Banks lobbied against the rule, while retailers and consumer groups lobbied equally hard in support of it.  The European Commission currently is discussing its own proposal on bank fees.

The battle over debit card fees, however, may pale in comparison to the growing fight over the Volcker rule. The 298-page rule proposed by the Federal Reserve and other regulatory agencies would ban banks from proprietary trading while allowing them to continue short-term trades for hedging or market-making. It also would limit banks’ investments in private-equity and hedge funds.

Both Japan and Canada have raised concerns with US regulators, and now the EU is planning to issue a formal complaint and will raise their concerns with Treasury Secretary Timothy Geithner next month. And Bank of Canada President Mark Carney this week called for exemptions from the Volcker rule.

On January 18, US regulators faced scrutiny from a House panel about the impact of the rule on economic growth, particularly on small businesses. In his testimony before Congress, Federal Reserve Governor Daniel Tarullo acknowledged the difficulty the agencies are facing in implementing the rule.

The regulators, who have already extended the comment period, are under increasing pressure to allow more time for discussion. And what does former Federal Reserve Governor Paul Volcker, after whom the rule is named, think of the matter? He has yet to comment.


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