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From Banking and Finance Law Daily, March 24, 2014

Volcker Rule costs to range from $400 million to $4.3 billion, agencies estimate

By Richard A. Roth, J.D.

In the process of determining whether the final Volcker Rule regulation qualifies as a “major rule” under the Congressional Review Act, the federal regulatory agencies have estimated that the regulation will impose total costs through 2017 that range from $412 million to $4.3 billion. The agencies’ analysis adds that this estimate does not include costs that are quantifiable but difficult to estimate, such as indirect costs due to decreased market liquidity. Forty-six banking institutions supervised by the Office of the Comptroller of the Currency will have compliance obligations, while a substantial number of smaller institutions will have none.

The analysis estimated annual compliance costs, additional capital costs, and OCC supervisory costs. It also described as “non-monetized costs” those costs that are related to:

  • restrictions on interdealer trading;

  • decreased liquidity;

  • shifting of risk to less-regulated or unregulated firms; and

  • reductions in banks’ ability to manage risk.

Benefits. On the other hand, there will be non-monetized benefits from the rules, the analysis concludes. These include enhancements in regulators’ ability to understand bank trading activities and associated risks and in banks’ ability to identify increased risk in their trading activities. Conflicts of interest will be reduced, core banking services will be protected, and systemic risk will be reduced, according to the agencies.

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