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Regulators OK Volcker Rule, Curbing Big Banks’ High-Risk Trades

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By Andrew Tangel, Jim Puzzanghera and E. Scott Reckard

The U.S. Chamber of Commerce, a leading business trade group, had wanted a longer process to assess the effect and make more changes. The chamber, which has gone to court to try to stop other parts of the Dodd-Frank law, left the door open to a legal challenge.

David Hirschmann, president of the chamber’s Center for Capital Markets Competitiveness, said the group would “carefully examine the final rule to consider the impact on liquidity and market-making, and take all options into account as we decide how best to proceed.”

Litigation could further drag out a process that has been fraught with bureaucratic wrangling for more than three years. Only 42 percent of the 398 rule-making requirements in the broader Dodd-Frank law had been finalized as of last week, according to the law firm Davis Polk & Wardwell.

The agencies involved in drafting the Volcker rule were the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

Fed Chairman Ben S. Bernanke noted the grueling process regulators took in meting out the final rule.

“Getting to this vote has taken longer than we would have liked, but five agencies have had to work together to grapple with a large number of difficult issues and respond to extensive public comments,” Bernanke said Tuesday.

The OCC, which regulates national banks, said the rule would have little or no effect on community banks. The higher-risk activities targeted by the Volcker rule generally involve investment arms of the giant banks. Those activities were largely kept separate from traditional commercial banking until 1997, when Congress repealed the Depression-era Glass-Steagall Act.

Some in Congress, including Sens. Elizabeth Warren (D-Mass.) and John McCain (R-Ariz.), have called for reinstating the Glass-Steagall prohibition of federally insured banks from also operating as investment firms.

While some expressed hope that the Volcker rule might set the stage for regulators to try to reduce the size of the nation’s largest banks, Columbia University law professor John Coffee said Washington’s partisan climate made such an overhaul unlikely.

©2013 the Los Angeles Times
Distributed by MCT Information Services

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