WASHINGTON — House Republicans continued their attacks on the Volcker Rule Thursday, arguing it was unnecessary and overly complex just a day after Federal Reserve Board Chairman Ben Bernanke signaled regulators were close to finalizing it.
"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," Financial Services Committee Chairman Spencer Bachus said at a hearing devoted to the issue. "The Volcker rule sticks out as an oddly considered afterthought — a solution in search of a problem."
The rule, named after former Fed Chairman Paul Volcker, would ban proprietary trading and limit bank investments in private equity.
Since regulators first outlined late last year how they planned to implement the rule, banks and other financial companies have argued the plan was too complicated and would have a negative impact on the economy. Even Volcker has signaled he has concerns about the approach taken by the five agencies that must jointly write the rule.
"I think we have all taken note of Chairman Volcker's statements that, number one, proprietary trading at the commercial banks was not central to the crisis, and that he has expressed concern with the rule bearing his name," said Rep. Jeb Hensarling, the Texas Republican that will become chairman of the panel next year. "I don't think he's giving his offspring up for adoption, but he doesn't seem to be well-pleased with it."
Regulators were hoping to complete the rule by the end of the year, but those efforts have stalled after the agencies received more than 18,000 comments in response to their proposal.
Bernanke said on Wednesday that the regulators "have made quite a bit of progress," adding that they hope to finish the rule by early next year.
But Hensarling said the outpouring of objections should give the agencies pause.
"As the Vice Chairman of this committee, I have noted not a few, not hundreds, but literally thousands of negative comments to have either arrived to this committee or to regulators from entities that are supposedly not negatively impacted," he said.
Democrats at the hearing largely defended the need for the Volcker rule and the pace of promulgation, warning about the risks of propriety trading, including fallout from JPMorgan's $6 billion in trading losses revealed last spring.
"I understand the difficulty, but I do want to say in defense of the regulators that they are in some sense damned if they do and damned if they don't," said Rep. Barney Frank, D-Mass., outgoing ranking member on the panel and a principal author of the Dodd-Frank law. "If they were to go ahead with a proposal generated among themselves, put it out there for comment, and then adopt it basically unchanged, they'd be legitimately criticized for not listening to the people. When, as they now did, they listened to a very large number of comments and seek to deal with them and improve the rules, then people complain it's taking too long."
Concerns that some institutions "might inadvertently find themselves in trouble" are overblown, Frank added, arguing that financial regulators have historically proven capable of discretion and not "bloodthirsty."
"Clearly there will be recognition that this will be experimental to some extent," he said.