G20 Officials Really Want The U.S. To Water Down The Volcker Rule

* Volcker rule criticized for unintended

* France, Italy optimistic US will consider their concerns

By Elinor Comlay

MEXICO CITY, Feb 26 (Reuters) - Finance officials from the Group of 20 economic powers expressed confidence that the United States could water down one of the centerpieces of its banking reforms, which critics see as a risk to debt markets and banks.

Senior G20 officials said they felt Washington was listening to their fears over the U.S. Volcker rule, which is designed to curb banks' trading for their own profit. It exempts trade in U.S. Treasuries, but not other countries' sovereign debt.

"The way it was initially formulated was a quite domestic vision, not global enough," said Bank of France governor Christian Noyer at the weekend meeting of G20 central bankers and finance ministry officials in Mexico City.

"This has been thoroughly explained to the United States... They perfectly understand the legitimacy of this reaction, which does not call into question the philosophy behind the rule."

The rule, named after former Federal Reserve Chairman Paul Volcker, aims to stop banks in the U.S. from taking risks with customer deposits. But Canadian, European and Mexican officials, among others, say that, as proposed, it could hurt trading in their government debt and potentially harm liquidity.

"There is a concern that it could have (an) unintended consequence, that it will restrict the traditional role that banks have played as go-betweens," a UK treasury official attending the G20 meetings said.

He added though, that "very constructive" talks were underway with U.S. officials and that the British government was "very confident" they would resolve matters successfully.

Bank of Italy Governor Ignazio Visco said he believes the United States will now look at ways in which the rule could be reworked to make it more fair internationally.

The International Monetary Fund said it was "very attentive" to the debate on the rule, but it has not taken a stand on it.

"We will look at the economic and financial consequences as we normally do," said IMF Managing Director Christine Lagarde.

In the final G20 communique there was no mention of the Volcker rule, part of the 2010 Dodd-Frank Act set of reforms. Proposed in October, it is scheduled to be implemented in July.


HARMING LIQUIDITY

At a conference organized by the Institute of International Finance that ran on Friday and Saturday in Mexico City, the Volcker Rule was a hot topic among speakers and attendees.

"It's clearly a rule that discriminates against all trading that takes place in sovereign debt that's not U.S. debt," said Luis Tellez, head of Mexico's stock exchange.

Bankers and non-U.S. regulators are also concerned about a dip in liquidity as a result of the rule.

One JPMorgan executive criticized the United States for trying to push it through despite the international concerns.

"It's playing with fire. You don't do that with medicine and you shouldn't do it with economic policy and financial regulation," said Jacob Frenkel, chairman of JPMorgan Chase International.

Canada's central bank governor Mark Carney, who heads the Financial Stability Board, in January called for the rule to be changed to exclude foreign sovereign debt.

Industry trade groups and big banks affected by the rule have in recent weeks bombarded regulators with comments, most of which were opposed to the proposal.

Regulators' next steps could include either adopting the rule or crafting a new one to put out for public comment again.

Even some U.S. regulatory officials are concerned.

"There is a considerable risk that as proposed, the regulatory infrastructure to implement the Volcker rule could unduly impede the competitiveness... of our financial markets and hinder the flow of capital," Republican SEC Commissioner Troy Paredes in Washington said on Friday.

Comments

[sigma316]

12:44 PM on 02/28/2012

I don't get the G-20's argument. These are the same characters that closed their eyes and put their heads in the sand leading up to the 2008 financial meltdown. Seems as if these puppets forgot that many global economies and large financial institutions thrived prior to the repeal of Glass-Stegall. If private financial corporations want to speculate with their own funds, let them have it, however, no tax payer insured deposits should be exposed.

[suzc]

12:41 PM on 02/28/2012

While We the People of the US, on the other hand, want it strengthened, along with the consumer protection agency, if we have even half a brain. We would appreciate a level playing field.

[aacme]

11:46 PM on 02/27/2012

"It's playing with fire. You don't do that with medicine and you shouldn't do it with economic policy and financial regulation," said Jacob Frenkel, chairman of JPMorgan Chase International.

Right, thank you Chase International. I think we already knew where you stood.
As I understand the complaint, rather than "watering down" the Volker Rule, expanding it to include foreign instruments also would solve the problem.

[loki]

09:43 PM on 02/27/2012

wheres all the tea party and Gop and Neo Cons, Liberals, Progressives, and others who have for years screamed about the US not being told how to do things by other countries. Keeping the UN and countries out of the parks, our of US laws and politics..

[Dan Langdon]

09:39 PM on 02/27/2012

The goal is to protect depositors. Let the international markets find another source to fund their bailouts

[laura r]

08:02 PM on 02/27/2012

-”When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”
Napoleon Bonaparte

[suzc]

12:42 PM on 02/28/2012

which explains why billionaires support Mitt Romney the Financier (and probably why he can't find words to connect with ordinary mortals).

[anonymous67]

05:05 PM on 02/27/2012

Wall Street banks are pariahs on the countries and economies of the world. Passing the Volcker rule -- unencumbered -- is the least that MUST be done. These banks no longer serve the world economies -- only themselves. And violating laws has merely become the banker’s cost of doing business.

Meanwhile governments bow to their might. In the United States, total assets of just six banks is nearly 70% of the entire country's Gross Domestic Product. Only fifteen years ago it was 17% of GDP.

It is past time to repeal the special privileges afforded these banks, restore mark-to-market and reinstate Glass-Steagall. And prosecute criminal behavior, government corruption and obstruction of justice.

[rak6748]

02:49 AM on 02/28/2012

X2... well stated

[Realist2011]

04:49 PM on 02/27/2012

The banks couldn't get Washington to trash the rule, so they're employing their lobbyists that run European countries to work on their behalf.

Let's face it, the banks and financial "markets" now own every government in the world.

Let the system collapse. I'm tired of watching our money be used to keep these "markets" in business and profitable. They produce nothing, the deserve nothing.

Eliminate all leveraging. Eliminate derivatives. Get rid of computer trading. Make them trade, buy and sell with CASH only and for heaven's sake, cut them off from the money, OUR money.

[jmdziuban1]

06:27 AM on 02/28/2012

You cannot get rid of all leveraging, unless you want to get rid of all lending, std all investment.

[Karelh]

04:13 PM on 02/27/2012

As usual, the wrong questions, and thus solutions are being discussed. Isn't the real issue the debt and amount of debt being produced, thus traded? The focus needs to be on reducing debt, we all need to start living within our means. While debt should be used in times of need and then re-paid, our whole system seems to have evolved to constantly growing pile of debt...that becomes unsustainable eventually.

[gov111w]

04:01 PM on 02/27/2012

This is yet another failed policy of this "know nothing do only harm administration"......

[traceymarie]

06:13 PM on 02/27/2012

lmao....so now you are agreeing with socialist countries.

[gov111w]

12:17 PM on 02/28/2012

No ! What I am saying is that a know nothing President has proven his ignorance by shooting from the hip and than going back and reversing himself...He will do it again !!!!

[tainteddr34ms]

03:40 PM on 02/27/2012

The Volker rule is the only teeth in finance reform when it comes to this kind of securities trading. If Obama's really going to cave to international banking interest then this time I'm really done supporting him. I'm tired of the dems caving into monied interests. So what is it Obama? Are you for the working class or are you for the 1%? How this turns out will say a lot about what side your admin is really on,

[ray77]

02:42 PM on 02/27/2012

What don't you understand, the american taxpayer is tired of baliing out the banks, including the foreign ones! ENOUGH!

[westcoastsc]

01:50 PM on 02/27/2012

Trading debt as if it were a commodity is utter foolishness and the cause of the trouble of all the the economic markets of the world. Hedging on debt, then hedging on that hedge is a vicious cycle and is like digging a hole to put a bigger hole inside it. Do not borrow from Peter to pay Paul.

[empiresentry]

01:49 PM on 02/27/2012

Get rid of Glass-Steigal....Check
Get rid of Volcker Rule....Check

[Damn Strange]

01:27 PM on 02/27/2012

Traitors serving us up to thieves. We have no voice in any of it. We have been sold out.

[westcoastsc]

01:50 PM on 02/27/2012

Time to put people behind bars.

[Damn Strange]

02:18 PM on 02/27/2012

More efficient to just confiscate the wealth from the bad stewards & use it to hire their servants to undo what they did. We are almost there. The reason the public criminal class couldn't assuage OWS is because they came right at them. Right now they are preparing something violent & large.