Canada regulator, banks take aim at U.S. Volcker rule

Fri Jan 6, 2012 3:17pm EST
 
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By Cameron French

TORONTO (Reuters) - Canada's financial services regulator and the country's banking sector are pushing back against the Volcker rule, a key plank of U.S. financial reform that they say would unfairly punish Canadian banks that deal closely with the U.S. market.

The rule, a controversial part of the massive 2010 Dodd-Frank financial oversight law, is designed to prevent U.S. banks from trading with their own funds and to limit investments in hedge funds and private equity firms.

But in a letter delivered to U.S. authorities in December and made public on Friday, Canada's Office of the Superintendent of Financial Institutions (OSFI) said the draft rules would limit Canadian banks' ability to manage their risks and efficiently manage their liquidity.

"OSFI is concerned that the draft regulations may have the unintended consequence of significantly impeding Canadian and other foreign financial institutions' ability to manage their risks in a cost-effective manner," OSFI head Julie Dickson said in the letter.

The Volcker rule would apply to each foreign bank with a branch, agency or subsidiary in the United States. Canada's five biggest banks all have a notable presence in the United States.

The submission is part of a behind-the-scenes effort kicked off by the Canadian Bankers Association (CBA) late last year to get U.S. authorities to alter the bill before it comes into effect, which could be as early as this summer.

CANADA BANKS U.S. PRESENCE

Terry Campbell, head of the banking industry lobby group, said the rule could have the effect of squeezing liquidity from the Canadian bond market, noting that the law treats Canadian bonds as higher-risk securities than U.S. bonds, and has exemptions only for banks that trade in U.S. debt.   Continued...