Sheila Bair urges tough Volcker rule disclosures

Thu May 31, 2012 12:37pm EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Alexandra Alper

WASHINGTON (Reuters) - Washington policymakers should tighten the Volcker rule's ban on risky bank trading by reining in a key exemption for hedging activity, former bank regulator Sheila Bair said on Thursday.

Industry players, however, raised concerns that financial markets would suffer if the exemption was highly restrictive.

Speaking at a roundtable hosted by the Commodity Futures Trading Commission, Bair said Volcker rule exemptions should be strictly defined.

"I would tighten the rule," she said. "A hedge should not be allowed unless it is a hedge."

Bair, who stepped down as chairman of the Federal Deposit Insurance Corp last year, has been an outspoken critic of Wall Street excess.

But financial industry players at the roundtable said that a very narrowly defined hedging exemption would damage liquidity, increase costs to market participants, and discourage hedging.

"There is no hedge you can put in place that does not create another risk," said Josh Cohn, counsel to the International Swaps and Derivatives Association, which is currently challenging a CFTC rule on position limits in court.

The Volcker rule is part of the 2010 Dodd-Frank financial reform law and has been seen as a critical tool to rein in the type of excessive risk-taking that fueled the financial crisis.   Continued...

Sheila Bair gestures as she testifies before the Senate Banking Committee on Capitol Hill in Washington, June 30, 2011. REUTERS/Jonathan Ernst