Chairman Bachus: Harmful Volcker Rule a "Self-Inflicted Wound That Should be Repealed"
Dec 13, 2012 -
Financial Services Committee Chairman Spencer Bachus today delivered the following statement at a hearing on the Volcker Rule, a controversial provision of the Dodd-Frank Act designed to prohibit proprietary trading by U.S. banks. The committee's hearing examined the harmful impacts the Volcker Rule will have on job creation, the economy and investors.
"This morning the Committee holds its second hearing focused on the Volcker Rule and specifically its impact on markets, investors and job creation.
"The Massachusetts Educational Finance Authority has warned regulators in its comment letter of February 13 that the Volcker Rule would increase funding costs for the authority’s bonds, which 'would be passed along to consumers funding higher education expenses' through their loan programs.
"In a February 14 comment letter to regulators, Financial Executives International, which represents corporate treasurers of public and private companies, wrote that the Volcker Rule, as proposed, 'could adversely affect the ability of American businesses to grow, create jobs, and contribute to a healthy economic recovery.'
"Putnam Investments also cautioned regulators in a February 13 letter that the consequences of the Volcker Rule 'may range from reducing liquidity in U.S. capital markets and harming their global competitiveness to raising the cost of capital to U.S. corporations, lowering return to investors and curbing the American economy’s capacity for growth.'
"The Volcker Rule is designed to prevent proprietary trading by banks. But no one, not even Paul Volcker himself, argues that proprietary trading was a cause of the financial crisis. The erosion of lending standards and the federal government’s poorly-conceived efforts to subsidize mortgage lending caused the financial crisis, not proprietary trading. Therefore, the Volcker Rule sticks out as an oddly-considered afterthought – a solution in search of a problem.
"Even if one attempted to argue that proprietary trading played a role in causing the financial crisis, and even if banning proprietary trading would make the financial system safer – propositions, by the way, that are simply not supported by the evidence – the prospect that regulators have been unable to agree on a single version of the Volcker Rule is extremely troubling. Competing versions of the Volcker Rule will make it all the more difficult for market participants to know what their obligations are and how to comply with them, particularly if they find themselves subject to conflicting obligations enforced by different regulators.
"The Volcker Rule – or even worse, Rules – doesn’t make the financial system any safer, but it does impose significant costs on consumers, workers, savers, taxpayers and businesses. It will stifle the growth of businesses that operate far from Wall Street, and it will hamper the ability of asset managers, pension funds and insurance companies to grow the value of their portfolios for millions of individual investors or retirees. The Volcker Rule is a self-inflicted wound that should be repealed. Unfortunately, the 112th Congress did not do that; the 113th should."