U.S. rejects Canada's claim that Volcker rule violates NAFTA

Thu May 14, 2015 12:24pm EDT
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By Jonathan Spicer

NEW YORK (Reuters) - The White House has dismissed the Canadian government's claim that a ban on some proprietary trading on Wall Street violates a free-trade agreement, saying it has the legal right to protect its financial system.

The U.S. response came after Canadian Finance Minister Joe Oliver said on Wednesday that the so-called Volcker rule's ban on U.S. banks' use of their own money to trade Canadian government bonds probably did not comply with the North American Free Trade Agreement.

The rule, adopted in 2010 but delayed in implementation, is meant to curb the risky proprietary trading blamed for worsening the 2007-2009 financial crisis, which led to bailouts of highly leveraged Wall Street banks by the U.S. government.

"The Volcker Rule is clearly not a violation of NAFTA or any other trade agreement, all of which explicitly safeguard the ability of the United States to protect the integrity and stability of our financial system," a U.S. Treasury spokeswoman said in an email.

The "prudential" rule protects "taxpayers and the depth, liquidity, and stability of U.S. capital markets," Treasury said. "NAFTA does not weaken our ability to implement Wall Street reform now or in the future, and neither would any trade agreement we're negotiating."

Sensitive to the politics of international trade pacts, U.S. President Barack Obama's administration is embroiled in a battle with Congress to seal a trade deal known as the Trans-Pacific Partnership.

Under the Volcker rule, U.S. banks could not do proprietary trading of non-U.S. government debt, including Canadian sovereign bonds, unless they meet certain exceptions.

Canada is trying to retain a deep market of demand for its debt. Standard & Poor's rates it AAA, higher than U.S. debt at AA+.   Continued...

Canada's Minister of Finance Joe Oliver departs after a news conference after a meeting of G-20 finance ministers and central bank governors during the IMF-World Bank annual meetings in Washington October 10, 2014.  REUTERS/Jonathan Ernst