WASHINGTON — Rep. Carolyn Maloney, D-N.Y., sent a letter to federal regulators Monday requesting an analysis of bank trading data that is being collected as part of the Volcker Rule.
The final rule implementing the proprietary trading ban — named for former Federal Reserve Board Chairman Paul Volcker, who first introduced the idea — requires banks with large trading operations to report a series of trading metrics that are intended to help federal regulators distinguish between market-making and hedging activities and speculative bets that do not benefit their customers. The trading ban was made law by the Dodd-Frank Act.
"I believe that these quantitative trading metrics can provide important information not only about the efficacy of the Volcker Rule, but also about the general trading activities of U.S. banks, and the degree to which these trading activities have changed over the past two years," Maloney, a member of the House Financial Services Committee, said in a letter to the Fed, the Federal Deposit Insurance Corp., the Commodity Futures Trading Commission, the Office of the Comptroller of the Currency and the Securities and Exchange Commission.
Maloney said the regulators have been collecting the trading-related metrics for large banks since 2014. "Thus, the agencies currently have nearly two years of quantitative trading data, spanning periods both before and after the effective date of the proprietary trading ban," she wrote.
She noted that when the final rule was published, the regulators said they would evaluate whether the data being collected was actually helpful in distinguishing between trading activity and that they would "revisit the metrics" by Sept. 30, 2015.
Maloney's letter also comes as concerns about liquidity in U.S. fixed-income markets have been increasing.
"There has been a vigorous debate about the liquidity of certain U.S. fixed-income markets, such as corporate bonds, and about whether the liquidity of these markets has deteriorated in recent years," Maloney said. "Data on the inventory turnover, inventory aging, and customer-facing trade ratios in the fixed-income market-making units of the large banks could prove particularly informative in this debate."'
Maloney also identified specific issues for the trading metrics analysis to address, including whether data shows "significant changes in banks' trading activities leading up to the July 21, 2015, effective date" of the Volcker Rule, whether risk of trading desks is comparable across banks reporting the data, and whether the "metrics have triggered further reviews by any of the agencies of a bank's trading activities," among other areas.