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U.S. Volcker Rule Faces Harsh Critics as Date Nears

Tuesday, February 14, 2012

The world’s largest banks demanded a wish list of changes to a proposed U.S. ban on proprietary trading, seeking to escalate the lobbying effort against the Volcker rule five months before it takes effect.

In scores of comment letters filed yesterday, bankers and their trade associations said the rule would increase risk, raise costs for investors, hurt U.S. competitiveness and be vulnerable to legal challenge.

“Regardless of how the final rule turns out, it will be a shock to the U.S. financial system, as banking entities will need to take extraordinary measures to attempt to implement it,” Barry Zubrow, executive vice president of JPMorgan Chase & Co. said in a 67-page letter. Goldman Sachs Group Inc. (GS), Morgan Stanley and Bank of America Corp. were set to submit their letters to regulators by today.

The rule, named after former Federal Reserve Chairman Paul Volcker, was included in the 2010 Dodd-Frank Act in an effort to restrict risky trading at banks that operate with federal guarantees. Five U.S. regulators released the 298-page proposal seeking comment on how it would affect market-making, liquidity, foreign institutions and private equity and hedge fund investments.

Volcker, 84, defended the rule in his own letter yesterday, challenging banks’ arguments that the rule would hurt markets.

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