Volcker rule could raise energy prices, study says
(Reuters) - The proposed Volcker rule crackdown on trading and investing by banks could cause gasoline, electricity and natural gas prices to rise, according to a new report.
The report, released on Wednesday by business information provider IHS Inc IHS.N, seeks to gauge the rule's impact on energy companies and markets, including oil refineries, natural gas producers and electricity providers.
The study was commissioned by investment bank Morgan Stanley (MS.N: Quote), which stands to be a big loser under the trading crackdown, but IHS researchers said they maintained complete control over the study and its conclusions.
The report's authors said large banks play a key role in helping a variety of energy companies hedge risk and engage in timely trades on commodity exchanges.
Any reduction in the banks' ability to play this role because of the Volcker rule will cause the cost of doing business to rise, according to the report, and that will lead to higher energy prices for consumers.
"You are going to eliminate the flywheel that makes the system work," IHS CERA Chairman Daniel Yergin, one of the report's authors, said in an interview.
The rule is a controversial part of the 2010 Dodd-Frank financial oversight law and it prevents banks from trading with their own capital and greatly restricts their investments in hedge and private equity funds.
The Volcker rule, an initial proposal of which was released by regulators in October, exempts trades done on behalf of clients or to hedge portfolio risk, but critics are concerned such exceptions may not work in practice.
Among the report's specific findings are that under the Volcker rule there could be 200,000 fewer energy sector jobs than projected between 2012 and 2016, gasoline prices on the East Coast could rise by 4 cents a gallon and investment in natural gas development could decrease. Continued...