Congress members fear Volcker restricts buy-side
Key members of US Congress have asked financial regulators to change
critical sections of the Volcker rule, worried the measure would significantly
impact the buy-side and restrict their access to hedge funds and private
A letter sent to four financial regulation agencies last week raised
concerns that the so-called Volcker rule banning prop trading at deposit-taking
institutions would negatively affect investments made by insurance companies by
not expressly allowing their general accounts to own or invest in a hedge fund or
private equity fund, dubbed covered funds. Bipartisan members of the House
Financial Services Committee have asked regulators to make this exemption
While under the rule, insurance companies have a general exemption from
bans on prop trading and investing in covered funds, the signatories said the
exemption was not specific enough and they were concerned the agencies were
looking to exclude the asset classes from the insurer exemption.
The signatories asserted that Congress had not intended to prohibit
insurance companies from investing in covered funds.
“We believe it is imperative that, as the agencies move forward, they
follow Congressional intent and permit insurance companies to continue
investing in covered funds for their general accounts,” the letter read. “There
would be little benefit to restricting these types of investments for
The move comes a week after Republicans had slammed the rule during an open
committee hearing as too expensive and complex for market participants to
implement. A joint rule was proposed in October by the Board of Governors of
the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC),
the Office of the Comptroller of the Currency (OCC), and the Securities and
Exchange Commission (SEC).
The letter from seventeen members of the Committee was addressed to Federal
Reserve chairman Ben Bernanke, SEC chair Mary Schapiro, FDIC acting chairman
Martin Gruenberg, and acting comptroller of the OCC, John Walsh. However, the
letter did not list as signatories the 44 remaining members of the committee,
including committee chair, Republican Spencer Bachus, vice chair, Republican
Jeb Hensarling or ranking member, Democrat Barney Frank, one of the authors of
The period for public consultation over the jointly-proposed rule was in
December extended from 13 January to 13 February.
The Commodity Futures Trading Commission (CFTC) proposed its version of
Volcker on 11 January. The CFTC rule largely mirrors that of the joint-agency
proposal and is presently undergoing a 60-day consultation period.