Trade Group Backs Alternative to Volcker Rule

WASHINGTON — The Institute of International Bankers backed an initiative by a key lawmaker to consider other legislative alternatives to the "Volcker Rule."

In a letter sent on Friday in response to a request by Rep. Spencer Bachus, chairman of the House Financial Services, the trade group endorsed finding effective and less costly alternatives to the "Volcker Rule," which will ban banks from proprietary trading.

"We support the proposition that there are potential legislative alternatives to the Volcker Rule, and aspects of the Volcker Rule, that should be revisited or revised if it is to remain in effect in some form," Sarah Miller, CEO of IIB, wrote in a letter.

IIB, which represents global financial institutions from more than 35 countries, argues that the right capital requirements and supervisory oversight of firms' risk management policies and practices is a far more effective way to regulate the risks that the Volcker Rule is meant to address.

"Failure to re-think the Volcker Rule could have far-reaching impact on U.S. and foreign market," said Miller.

The IIB, along with many other financial firms and trade groups, have argued that the rule as currently drafted would limit banks' ability to lend and would ultimately end up drying up the amount of liquidity available across a range of asset classes.

The group has pushed back heavily on the rule for its extraterritorial scope, which they argue inappropriately imposes U.S. limitations outside of the country.

"Simply put, there is no justification for the Volcker Rule to limit transactions by international banks that do not put U.S. financial stability, the safety and soundness of U.S. banks or U.S. taxpayer dollars at risk," said Miller.

The IIB wants Congress to take steps in three key areas to prevent such a spill-over, namely to make clear that international banks and their non-U.S. affiliates will be allowed to conduct trading and fund activities outside the U.S. Secondly, that such prohibition and "prudential backstops" apply only to activities in the U.S. and lastly, that trading in non-U.S. government securities should receive the same exemption as U.S. securities.

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