Chamber asks Volcker Rule rewrite as U.S. agencies near deadline

Fundamental changes at play

The U.S. Chamber of Commerce called for delaying approval of the Volcker rule ban on proprietary trading by banks as regulators approach a year-end deadline set by the White House to complete the proposal.

In a letter sent to regulators today, the business group said the proposal should be rewritten because “many fundamental issues” have emerged since the comment period closed. Specifically, the chamber said there had been reports of changes to the proposal’s hedging provision after JPMorgan Chase & Co.’s $6.2 billion trading loss.

“The process to date has created a ‘black box’ of rule writing that could result in an unbridled exercise of regulatory power that can harm the economy,” David Hirschmann, president and chief executive officer for chamber’s Center for Capital Markets Competitiveness, wrote in the letter to regulators.

Regulators have pledged to finalize by the end of the year the Volcker rule’s hedging provision, which allows banks to conduct some proprietary trading to protect themselves against other losses, in a way that would prevent a repeat of JPMorgan’s derivative bets by a trader dubbed London Whale. A rewrite of the rule would push the process well into 2014.

Federal Reserve Governor Daniel Tarullo said on Nov. 23 that a key mandate of regulators is to ensure that the London Whale couldn’t happen again.

Five regulators -- the Federal Reserve, Office of Comptroller of the Currency, Securities and Exchange Commission, Federal Deposit Insurance Corp., and Commodity Futures Trading Commission -- issued the proposed rule in 2011 and the comment period closed in February 2012. JPMorgan revealed its trading loss months later.

‘After-The-Fact’

Hirschmann said “after-the-fact reconfiguration of such a massive regulation without public comment and input would seem to run counter to the letter and spirit” of rulemaking laws.

At issue is an exemption in the rule for broad portfolio hedging. Regulators are working to narrow that exemption.

“By expanding the Volcker Rule, to include portfolio hedging, without public comment does not allow businesses to either consider the implications or communicate to regulators how capital formation will be affected,” Hirschmann wrote. “Inter-agency negotiations and selective press leaks are no substitute for the rigors of notice and comment rulemaking.”

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