09 June 2010

Reuters: Volcker Rule at issue as reform bill nears finale

New controversy emerged over the proposed "Volcker rule" that would bar banks from the risky private equity and hedge fund businesses. Paul Volcker said he firmly opposes giving banks that make only small investments in hedge funds or private equity funds any exemption from his proposed ban.

New controversy emerged over the proposed "Volcker rule" that would bar banks from the risky private equity and hedge fund businesses. Paul Volcker said he firmly opposes giving banks that make only small investments in hedge funds or private equity funds any exemption from his proposed ban.

 

The letter from Volcker to Senate Banking Committee Chairman Christopher Dodd emerged as Capitol Hill negotiations intensified over a central component of the Obama administration's agenda to push through the biggest rewrite of financial regulation since the Great Depression of the 1930s.

 

"I absolutely oppose any such modification" of the U.S. Senate's Wall Street reform bill, Volcker said in the May 17 letter to Dodd.

 

The Volcker rule, which was proposed in January by Volcker and President Barack Obama and is widely seen by analysts as eventually becoming law, threatens to reduce trading profits at big banks, which have fought for months to kill or weaken it.

 

As proposed, the rule would curb proprietary trading by banks for their own accounts unrelated to customers' needs, and their sponsorship of hedge funds and private equity funds.

 

One line of attack for bank lobbyists has been to seek so-called "de minimis" carve-outs that would let banks hold small stakes in third-party funds.

 

Senate aides said large banks are continuing to press for such exemptions that would let them invest in outside funds for marketing or relationship purposes.

 

Volcker said in the letter that "allowing a bank to invest in a speculative fund goes against the very intent of the (Senate) bill as we seek to define those activities that are worthy of government protection."

 

Lawmakers will meet on Thursday to begin forging the final financial regulation bill, with the goal of completing their work by June 26, Representative Barney Frank said on Tuesday.

 

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