GFS LinkedIn
GFS Facebook
GFS Twitter
GFS RSS feed

Ex-regulator urges Volcker rule rethink

Thursday 8 December 2011 - by Karina Whalley

 The Volcker rule on US bank proprietary trading has been slated as "extraordinarily complex" by the former chairman of the Federal Deposit Insurance Corporation chairman.

Sheila Bair, who stepped down in July this year, lambasted the 215-page rule, saying regulators should tear up the current proposals.

Speaking at a Senate banking committee hearing on Wednesday, she said that without significant changes, she would recommend reinstating the 32-page Glass-Steagall Act.

The rule, which bans proprietary trading by banks, excludes traditional securities activities such as investment banking and market-making. However, according to Bair, the "line between these exceptions and proprietary trading is unclear".

"I fear that the recently proposed regulation to implement the Volcker rule is extraordinarily complex and tries too hard to slice and dice these exceptions in a way that could arguably permit high risk proprietary trading in an insured bank while restricting legitimate market making activities in securities affiliates," Bair said.

Agencies should instead draw up a "simple rule based on the underlying economics of the transaction, not on its label or accounting treatment," she said.


The former FDIC head also called for tougher capital rules regulation and said regulators need to give more attention to liquidity, both in the US and internationally.

Financial institutions should be limited in how much short term debt they use to fund their balance sheets, Bair said.
She called for minimum requirements for the issuance of long term debt and said money market mutual funds should be made to use a floating net asset value.

"We need to dramatically toughen the types of collateral than can be used to secure repos and other short term loans," she told the committee.

Her complaints echo concerns from the American Bankers Association, who have labelled the FDIC's proposal as too complex and complicated.

"The banking industry fears the oversized nature and complexity of this proposed rule will make it unworkable and will further inhibit US banks' ability to serve customers and compete internationally," the ABA said in October.


WHAT DO YOU THINK?
 
Name:
   
Email:
   
Comment:
   
Post as Anonymous
  Display name
   
Please, enter security code
   
 

No comments yet.

STRAW POLL

Will markets in 2012 have a tougher time than 2011?

Yes

No

Don't know

View results

FIND A REGION world regions