WASHINGTON House Republicans were sharply critical Wednesday of regulators' final Volcker Rule, warning that it adds an unnecessary and costly layer of regulation.
The banking agencies finalized the ban on proprietary trading last month, more than two years after they issued their initial proposal. During a House Financial Services Committee hearing on the issue, several GOP members slammed the agencies for not undertaking a cost-benefit analysis of the rule as well as raising concerns about how it will impact the international competitiveness of U.S. institutions.
"Volcker is a solution in search of a problem," said Rep. Jeb Hensarling, R-Texas, chairman of the banking panel, calling the rule "compound, complex, confounding, confusing and convoluted."
Industry representatives raised their own concerns with the potential effects of the provision, including its impact on financial markets and the economy.
"It's important to recognize that U.S. businesses benefit from the most efficient capital markets in the world," said David Robertson, partner and director of Treasury Strategies, testifying on behalf of the Chamber of Commerce. "Reduced access to capital or certainty of access will require companies to hold more cash on their balance sheets, slowing economic growth. And how will companies generate more cash? Through layoffs, reducing dividend payouts that retirees depend upon, and by forestalling capital expenditures which fuel growth."
Critics of the rule repeatedly warned that the Securities and Exchange Commission failed to adequately assess the costs and benefits of the rule, an issue that has been raised successfully in previous lawsuits against the agency and that could potentially spur a legal challenge to the Volcker Rule. Hensarling and Rep. Scott Garrett, R-N.J., wrote a letter to the SEC Monday evening asking why the agency did not include a more detailed economic analysis, a concern shared by others on the committee.
"I think my biggest concern about whether it's the Volcker Rule or all of these regulations is the lack of cost-benefit analysis that's been done. Because ultimately, who's going to pay for these increased cost is ultimately the people that are at the bottom of the chain here, and that's the customers," said Rep. Randy Neugebauer, R-Texas.
Even some Democrats expressed concerns about the rule, including whether it would hurt the competitiveness of the U.S. financial market abroad.
"The one concern I have about the Volcker Rule is in the international arena, and how we are placing our economic system in a weakened position if we do not look very carefully at the competitive situation" for the financial system and the larger economy, said Rep. David Scott, D-Ga.
Still, Democrats on the banking panel largely defended the rule, arguing that it is correctly designed to reduce systemic risk to the financial system, even if smaller tweaks are needed. Lawmakers on both sides of the political aisle have been urging regulators to establish an exemption for banks holding collateralized debt obligations backed by trust-preferred securities, which the agencies released on Tuesday night.
"A key part of Wall Street reform is the Volcker rule. If properly implemented, the rule would provide that banks insured by taxpayer dollars can no longer engage in proprietary trading or investments in risky vehicles like hedge funds," said Rep. Maxine Waters, D-Calif., the ranking member on the committee, while thanking regulators for "working diligently" to address certain issues, including with respect to the Trups-backed obligations.
Supporters of the rule, including Simon Johnson, a professor at the Massachusetts Institute of Technology, also downplayed sweeping concerns about the economic burdens of the provision.
"If there were a disruption to the financial markets that were becoming harder to access credit, if the corporate treasurers were fearing their access to short-term financing, those would be legitimate concerns, but we would see them now. The markets would already be disrupted," said Johnson. "Where do we see this disruption concretely for corporate treasurers?"