Critics claim Volcker rule skirts cost-benefit laws

Wed Feb 12, 2014 1:18am EST
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By Sarah N. Lynch and Emily Stephenson

WASHINGTON (Reuters) - Opponents of the Volcker rule, which bans U.S. banks from proprietary trading, are exploring whether regulators violated two obscure laws that require them to study the costs to business, a move that could lead to a possible legal challenge.

The U.S. Chamber of Commerce says bank regulators appear to have failed to meet their obligation to fully study the Volcker rule's cost to the financial industry and the economy.

Lawyers for the business lobby group are combing through the 1995 Unfunded Mandates Reform Act, which the Office of the Comptroller of the Currency (OCC) has said directs it to assess the economic impact of any new rule that will cost the government or private sector $100 million or more.

The lawyers are also looking at the Riegle Community Development and Regulatory Improvement Act, which requires the Federal Reserve, the Federal Deposit Insurance Corp and the OCC to weigh "administrative burdens" on banks, including small banks and their customers, against the rule's benefits.

"We are still doing our analysis with the Volcker rule, but clearly I believe that the banking regulators are ... on notice going forward," said Tom Quaadman, a vice president at the Chamber of Commerce's Center for Capital Markets Competitiveness.

The Chamber has not yet decided if it will file a lawsuit. It is unclear whether either law could successfully be used as part of a challenge.

However, this area has been a weak spot for regulatory agencies that face tougher cost-benefit analysis requirements than the banking regulators.

In 2011, for instance, an appeals court struck down a rule that made it easier for shareholders to nominate corporate directors. It said the U.S. Securities and Exchange Commission's analysis of the rule was flawed.   Continued...