WASHINGTON — Acting Comptroller John Walsh expressed concern Tuesday about the impact of the Volcker Rule on the competitiveness of U.S. banks internationally.
In written testimony to two House subcommittees, Walsh noted that foreign banks that do not have U.S. operations will be exempt from the Volcker Rule's restrictions on proprietary trading and investments in hedge funds or private equity funds.
"Accordingly, U.S. banks competing with these foreign banks will operate at a competitive disadvantage," said Walsh, who will testify Wednesday at a congressional hearing on the Volcker Rule.
Walsh did note, however, that foreign banks with U.S. banking operations will be subject to the Volcker Rule on a global basis.
This means that large European banks such as Banco Santander and Royal Bank of Scotland, which operate banks in the United States, would be subject to the Volcker Rule.
Regulators are currently in the process of implementing of the Volcker Rule, which was part of the 2010 Dodd-Frank Act. A comment period on proposed rules is open until Feb. 13.
Walsh raised other concerns about the Volcker Rule, too. He that his agency is concerned about how to strike the right balance between identifying permissible activities and reducing the risk profile of banks without undermining bank profitability.
"We also recognize the compliance burdens on banking entities of all sizes arising from the proposal," Walsh said, "and therefore will be interested in whether comparably effective compliance results could be achieved through less burdensome approaches."
Walsh's comments about international competitiveness echo remarks made last year by Rep. Scott Garrett, R-N.J., who is co-chairing Wednesday's hearing.
At a press conference in July 2010, Garrett argued that hedge funds, private equity funds and proprietary trading did not play a major role in the financial crisis, before adding: "Well, we now have the Volcker Rule. Our competitors do not."
Also scheduled to testify at Wednesday's hearing are acting Federal Deposit Insurance Corp. Chairman Martin Gruenberg; Federal Reserve Board Governor Daniel Tarullo; Securities and Exchange Commission Chairman Mary Schapiro; and Commodity Futures Exchange Commission Chairman Gary Gensler.
