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The Volcker Rule and Foreign Banks Part I

 

20 October 2011

The Volcker Rule and Foreign Banks Part I: The Incredible Shrinking Exemption for Trading Outside of the US  

With the publication of proposed rules to implement section 619 of the Dodd-Frank Act, the four federal agencies issuing the proposal (the SEC, the FDIC, the Federal Reserve and the OCC) posed a significant challenge to foreign banks with US branches, agencies or subsidiaries and US affiliates. If implemented as proposed, section 619 would greatly expand the reach of US financial services regulation around the globe and could decimate the largely non-US trading activities of Covered Foreign Banks as currently conducted.

To avoid this, Covered Foreign Banks will be forced to choose between complying with the provisions of section 619 or leaving the US financial markets. From either result, the world's largest and most liquid capital markets–which currently reside in the US–will build a wall around its trading shores. Such an extreme aftermath is not required by the text or purpose of section 619, however, and Covered Foreign Banks should provide their views and comments to the Agencies.

This publication looks at the effects of the ban on proprietary trading on Covered Foreign Banks and suggests how the Agencies could amend the Proposed Rules to ameliorate these concerns while remaining true to the spirit and letter of section 619.

 

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