Volcker Pushes For No Exceptions To Namesake Rule

Jun 10 2010 | 12:32pm ET

Former Federal Reserve Chairman and White House economic adviser Paul Volcker is going to bat for the controversial rule that bears his name.

Volcker—who has championed a provision in the financial regulation reform bill that would bar bank holding companies from the alternative investments industry—said that there would be a battle over the rule, but expressed optimism that the reforms would pass in a “reasonable form.”

Volcker’s positive outlook came after he sent a letter to Sen. Christopher Dodd (D-N.Y.), head of the Senate Banking Committee, blasting a proposal that would exempt banks with small investments in hedge funds and private equity funds from the ban.

“I absolutely oppose any such modification,” Volcker wrote last month. “Allowing a bank to invest in a speculative fund goes against the very intent of the bill as we seek to define those activities that are worthy of government protection.”

The Volcker rule, in its strictest form, would bar bank holding companies from owning, investing in or sponsoring hedge funds or private equity funds, as well as instituting a ban on proprietary trading. In its current form, however, many of the details are to be left to regulators.

U.S. banks and their lobbyists are pushing hard for a “de minimis” exemption to allow them to continue some of those practices, especially for marketing and relationship purposes. By contrast, some Democrats hope to toughen the provisions in the House-Senate conference to hammer out the difference between the two bills as passed by each house of Congress.

Banks and Republicans are not the only ones skeptical of the Volcker rule. Europeans, whose own plan to regulate hedge funds and private equity firms goes much farther than those being discussed in the U.S., do not seem interested in taking up Volcker’s call.

“We are not currently, to my knowledge, trying to ban that,” Wolf Klinz, a member of the European Parliament and chairman of its financial, economic and social crisis special committee, said after a meeting in Washington, D.C., of proprietary trading.

As with other matters of financial reform, however, the U.S. can look to the U.K. for support.

Britain is “one area of Europe who believe the Volcker rule makes some sense,” Kay Swinburne, a British member of the special committee, said.


In Depth

The Benefits Of Private Debt Investing

May 7 2015 | 10:43am ET

Jeffrey Haas is chief operating officer of Old Hill Partners Inc., an SEC-registered...

Lifestyle

Yale Receives $150 Million Gift from Blackstone’s Schwarzman

May 12 2015 | 12:10am ET

Yale University announced it has received a $150 million gift from Blackstone Group...

Guest Contributor

How To Generate 6% Yield In A Volatile World

May 22 2015 | 6:41am ET

Private credit comes in many different flavors, all with the common themes of over...

 

Editor's Note