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From Banking and Finance Law Daily, December 5, 2013

Business groups warn of Volcker Rule’s negative impact, urge re-proposal

By Charles A. Menke, J.D.

The Volcker Rule will have far-reaching negative consequences that will impede non-financial companies’ ability to raise capital and manage risk, a coalition of business organizations asserted in a letter to Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corporation, Securities and Exchange Commission, and Commodity Futures Trading Commission. The organizations joining in the letter include the Business Roundtable, Financial Executives International, National Association of Corporate Treasurers, The Real Estate Roundtable, and U.S. Chamber of Commerce.

The organizations urge the regulators to re-propose the Volcker Rule to allow a thorough evaluation of the rule’s impact. In early November, the Center for Capital Competitiveness, which was created by the U.S. Chamber of Commerce, wrote to the regulators urging a re-proposal of the Volcker Rule (see Banking and Finance Law Daily, Nov. 8, 2013). A second letter cited additional, significant developments necessitating a re-proposal (see Banking and Finance Law Daily, Dec. 2, 2013).

Negative consequences. In the most recent letter, the organizations contend the rule may have unintended but detrimental impacts upon growth, operations, and cash management. They believe the rule’s adoption will severely restrict financial institutions from providing businesses with market-making and underwriting functions necessary to raise capital and manage risk.

The letter specifically points out the following negative consequences for businesses as a result of the rule’s adoption:

  • impairment of corporate liquidity and restricted cash management activities;

  • reduced ability of businesses to raise capital for long-term growth;

  • higher costs for both borrowers and investors; and

  • undermining U.S. competitiveness.

The organizations further contend that the rule’s exemption for U.S. Treasury securities validates the likelihood of these negative consequences. “Imposing the Volcker Rule’s restrictions only on the markets that are used by the corporate community is no way to advance our national interests,” the letter said.

The letter also points out that differences in the interpretation, application, and enforcement of the Volcker Rule by five agencies may likewise have a negative impact by “sowing confusion and inefficiencies in the marketplace that can harm businesses and place America at a competitive disadvantage as well.”

Roundtable. The organizations also reiterated their request for a roundtable to identify unintended consequences of the rule and establish policies to avoid them. “We are concerned that without a broader outreach effort, regulators may be left with an incomplete understanding of the Volcker Rule’s impact upon the capital formation processes used by non-financial companies,” the letter states. “We believe that it is more important to get the Volcker Rule right than meet an artificially imposed deadline and request that the regulators re-propose the Volcker Rule.”

Companies: Business Roundtable; Center for Capital Competitiveness; Financial Executives International; National Association of Corporate Treasurers; The Real Estate Roundtable; U.S. Chamber of Commerce

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