The Volcker Rule

The Volcker Rule bans proprietary trading, and hedge fund and private equity activities, by banks to limit and regulate the amount of risk they can take on.  Proprietary trading occurs when a financial firm trades financial instruments, such as stocks and currencies.  In other words, it occurs when banks use their own money to make investments alongside their clients’ money to establish an inventory that enables faster transactions for clients. 

Unintended Consequences of the Volcker Rule

• Reduce levels of capital formation and liquidity for businesses.
• Change long-standing business models of banks to act as market makers to the detriment of clients and investors.  In that capacity, banks have an obligation to act as a purchaser of securities even at times when another buyer does not exist to establish an accessible inventory. This fills an important role in providing liquidity to their clients and the market.    
• Create additional compliance burdens and costs around hedging activities, derivatives, and other risk mitigation efforts. 
• Increase the cost of raising debt in the capital markets could rise between 5 and 25 basis points. 
• Force companies to build out a Volcker compliance program if they have finance arms or own a bank.
• Bar Mid-Size and Small Cap companies from some debt markets because of increased costs and administrative burdens of borrowing, at the same time that Basel III may restrict the ability of these same companies to access bank lending. 
• Drive profit-making activity overseas because they do not comply with similar standards.
• Curtail activities of foreign firms in the United States constricting the pool of capital for American businesses.

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Chamber’s Position

Delay to Find the Least Burdensome Alternative: A proposed rule was released by four out of the five regulators tasked with implementation, with the comment period closing on Feb 13, 2012.  The fifth regulator, the CFTC's comment period ends on March 13. The proposal currently stands at 298 pages with more than 1,400 questions about 400 topics.  Regulators should extend and reconcile comment periods. Until the regulators get on the same page, it is impossible for businesses to assess the impact the rule will have on its business or offer suggestions as to how to improve it.  Given the far-reaching impacts of the Volcker Rule and the current economic environment, regulators should use the extra time to find the least burdensome alternative.   

Volcker Rule Working Group

Recent Activity

February 15, 2012: The Chamber along with 26 companies sent a letter to the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), Securities and Exchange Commission (SEC), Office of the Comptroller of the Currency (OCC), and Commodities and Futures Trading Commission (CFTC), highlighting the consequences for business in the proposed Volcker Rule.

February 13, 2012: CCMC submitted a comment Letter to the Federal Reserve, SEC, CFTC, FDIC, and OCC on the Prohibitions and Restrictions on Proprietary Trading and Certain Interests in and Relationships With, Hedge Funds and Private Equity Funds.

January 24, 2012: CCMMC hosted a fly-in with corporate treasurers to meet with the SEC, the Federal Reserve, and the CFTC regarding the proposed Volcker Rule. T he day started with an event featuring Senator Corker and a panel discussion on the unintended consequences of the rule to non-financial companies.  CCMC also launched a new web site focused on how the Volcker Rule will impact main street businesses, with the purpose of educating and engaging non-financial companies. 

January 18, 2012: Tony Carfang of Treasury Strategies testified on our behalf to the House Financial Services Committee’s hearing “Examining the Impact of the Volcker Rule on Markets, Businesses, Investors, and Job Creation.”

January 17, 2012: CCMC submitted a comment Letter to the Federal Reserve, SEC, CFTC, FDIC, and OCC on the Prohibitions and Restrictions on Proprietary Trading and Certain Interests in and Relationships With, Hedge Funds and Private Equity Funds.

January 17, 2012: The Chamber sent a letter to the Hill in advance of the January 18 hearing asking regulators to reconcile their comment periods with the conclusion of the Commodities and Futures Trading Commission comment period.

January 11, 2012: The Chamber called for a further extension to the comment periods at the four other agencies to reconcile the comment periods across all five agencies.