Chamber Faces Off with Dodd-Frank Backers Over Free Trade

In a column written for the Financial Times, George Osborne, British finance minister, and Jun Azumi, his Japenese counterpart, warned that the U.S. regulation could make it “more difficult, costlier, and riskier for countries to issue and distribute debt.”

According to critics, the regulation could increase borrowing costs for foreign governments, limiting their ability to raise funds in government bond markets. The rule includes an exception for U.S. Treasuries, but excludes non-U.S. government bonds, raising concerns among foreign governments of double standards. The Chamber said that the rule could violate free trade obligations because it would cover foreign sovereign debt, while exempting U.S. government bonds. Foreign banks operating in the U.S., or offering services to any U.S. residents, would also have to comply with the rule.

“International rejection of the Volcker Rule continued after the passage of the Dodd-Frank Act and in the two and a half years since the passage of the [act], no other nation has enacted legislation or regulations analogous to the Volcker Rule,” said the Chamber in its statement. The letter also warns that the rule could prompt retaliation from foreign governments.

In his statement, Levin also explained his position on proprietary trading by banks whose deposits are federally insured.

“The principle behind the Merkley-Levin provision implementing the Volcker Rule is simple: If you’re going to place risky bets for your own profit, you can’t do it with the backing of government-insured deposits. That’s just common sense, and the big banks and their allies should stop their foot-dragging and obfuscation. The time for delay is over; now it’s time for a strong Volcker Rule and vigorous enforcement,” said Levin in the statement.

Sens. Carl Levin and Jeff Merkley (D-Ore.) introduced their amendment to the Dodd-Frank Act in May 2010 to “restrict proprietary trading at banks and other large, important financial institutions” that use the money of taxpayers. The Huffington Post reported that, shortly after the senators’ announcement, Volcker declared his support of the amendment in a personal letter he sent to the two senators and praised their effort to “clarify and enhance the proprietary trading restrictions contained in the Dodd Bill.”

Proponents of the Volcker Rule blame proprietary trading for exacerbating the financial crisis by encouraging risky investment among banks.

The U.S. Chamber of Commerce became the first business group to effectively challenge government regulations invoking the law in 2005. Since then, it has succeed in having the United States Court of Appeals for the District of Columbia toss out three financial regulations.

Even if the trade representative’s office declines the Chamber’s requested review, the letter could open the gates for legal challenges against the rule.