—SIFMA today released the following statement from President and CEO Tim Ryan in reaction to the release of the Financial Stability Oversight Council’s study and recommendations for implementing the Volcker Rule.
“Today’s study and recommendations are the first step in a complicated process to write rules implementing a ban on proprietary trading by banking entities while ensuring permitted activities critical to well functioning markets continue unimpeded.
“Regulators will need to strike the right balance between banning those activities deemed to be proprietary trading and those that are permitted activities under the Volcker Rule. The ability of financial institutions to make markets for different kinds of financial instruments is crucial to market liquidity and capital formation, which fuels economic growth and job creation.
“While we will review the FSOC’s study in further detail in the days ahead, we appreciate the Council’s recognition that there cannot be a one-size-fits-all rule for all asset classes and that grey areas exist between permitted market-making activities, such as market making and hedging, and proprietary trading. As this process moves from recommendations to proposed rules, SIFMA and its members look forward to providing comment and recommendations on the most efficient and effective means to insure compliance with the ban on proprietary trading, while supporting market making and hedging activities of banking entities.
“We also appreciate the FSOC’s recognition that it will be important for regulators to appropriately define terms used in the Dodd-Frank Act to address the restriction of banks’ investment in private equity and hedge funds. Without appropriate definition of terms used in this section of the Volcker Rule, SIFMA believes that a number of unintended consequences could arise that would adversely impact soundness of these entities rather than strengthening it.
“It may sweep in entities and vehicles--mutual funds and traditional corporate lending vehicles--that Congress never intended to be treated as hedge funds or private equity funds. A principal goal of the Volcker Rule is to eliminate the temptation of banks to bail out investors in sponsored hedge funds and private equity funds, which might expand a banking entity’s losses during a financial crisis. However, if you define too broadly the terms ‘hedge fund’ and ‘private equity fund’, you risk eliminating activities which contribute to creating jobs and providing capital and credit to allow companies to innovate and prosper.”