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Industry Updates

Lawmakers fail to reach agreement on Volcker rule

Thursday, June 24, 2010
Opalesque Industry Update – Congressional negotiators struggled but failed to reach an agreement on Wednesday into a sweeping financial industry reform, including the so-called Volcker rule that bans depository institutions such as banks, to use their own funds to reap profits rather than acting on behalf of their clients, various media reports said.

The Volcker proposal, now known as “the Volcker rule” after its main proponent economic adviser Paul Volcker, was among the most contentious issues during the debate, according to Chicago Tribune.

But House Financial Services Chairman Barney Frank said he intends to keep negotiators at the bargaining table as long as necessary to finish work on the proposal before Friday. "No one is interested in fomenting uncertainty. We stay until we finish,” he declared.

Democratic leaders from the Senate and the House labored to convince fellow Democrat Senator Blanche Lincoln to soften a provision she forwarded that would force banks to throw away certain lucrative business, including derivatives trading.

The New York Times said a group of Democratic legislators from New York, where derivatives trading is concentrated, expressed criticism over the inclusion of Lincoln’s language, warning that it could jeopardize their support for a wider proposal to reform financial regulation.

As this developed, Democratic leaders are rushing to gain the support of several Republican senators for the passage of the bill during the two weeks of conference committee hearings which began Wednesday. According to The Hill, the Democrats are also working behind the scenes to bridge inter-party rifts caused by the proposal of Sen. Lincoln.

Exemptions
Prior to the convening of the conference committee, Reuters reported that a compromise may have been reached to tighten the Volcker rule and allow banks to maintain small investments in private equity and hedge funds under a Senate revision.

The U.S. banking industry, their lobbyists and some sympathetic congressmen, have pushed to undercut the Volcker Rule, by introducing a series of exemptions and allow banks to continue operating their hedge funds and private equity units. Reports said that the three main exemptions are excluding asset management and insurance companies, an exemption that would allow banks to continue to invest in hedge funds and private equity firms, and a long delay that would give banks up to seven years to enact the changes.

But Frank has already stated that these exemptions that the banks are pushing would face an uphill battle in Congress as there are many legislators are opposed to the proposal.

Volcker upbeat on reform bill
One of the main opponents of the proposed exemption is the author of the bill himself, Volcker. In his May 17 letter to Senate Banking Committee Chairman Christopher Dodd, Volcker said "I absolutely oppose any such modification" of the U.S. Senate's Wall Street reform bill.

In fact, early this month, Volcker expressed optimism that a “reasonable form” of a sweeping U.S. financial overhaul would be approved by legislators during the two-week conference committee hearing. He added that the proposed financial reform would become a global model and allow countries to work together that was not possible in the past.
-Precy Dumlao

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