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http://www.ft.com/cms/s/0/fd581e3e-e7a2-11df-8ade-00144feab49a.html

US regulators warned on new bank legislation

By Tom Braith

Published: November 4 2010 00:40 | Last updated: November 4 2010 00:40
Spencer Bachus, a potential Republican chairman of the House financial  
services committee, has fired the first salvo in a battle with  
regulators – warning them against harming US banks by curbing their  
trading activity.

In a letter sent to the Financial Stability Oversight Council, Mr  
Bachus says that a ban on proprietary trading – known as the Volcker  
rule – that was included in the new Dodd-Frank financial reform law  
will “impose substantial costs on the American economy and market  
participants” with “doubtful” benefits. “Depending on how US  
regulators choose to implement it, the Volcker rule may spark a mass  
exodus of clients from US banks to banks based abroad,” he said in  
the letter obtained by the Financial Times. He highlighted UK-based  
institutions as possible beneficiaries.

Underlining the change in Congress, Mr Bachus, who as ranking  
Republican on the committee could replace Barney Frank as chairman of  
the panel, expressed concern that shareholders of Goldman Sachs  
andJPMorgan Chase will be hurt because the banks will be less  
profitable.
Mr Bachus has served as senior Republican on the committee and was  
widely expected to inherit the chairmanship. But on Wednesday night Ed  
Royce, another Republican congressman, announced he would compete for  
the job.

The proprietary trading ban, named after Paul Volcker, the former  
Federal Reserve chairman who proposed it, was opposed by most  
Republicans when it was passed by Congress in June. It also restricts  
banks’ investments in hedge funds and private equity firms.

Regulators have a great deal of latitude in defining how strict the  
ban should be. Mr Volcker and some Democratic senators are urging a  
broadly defined ban butthe elections gave Mr Bachus new clout in his  
push for a looser approach.

The Financial Stability Oversight Council, whose members include Tim  
Geithner, Treasury secretary, and Ben Bernanke, Fed chairman, is this  
week asking for public comments on how the rules should be written.

Meanwhile, there was talk on Wednesday that Mr Frank, co-author of the  
law, could leave the House following his party’s defeat in the  
midterm elections.Christopher Whalen, analyst at Institutional Risk  
Analytics, suggested Mr Frank may already have been lined up as  
chairman of the new Consumer Financial Protection Bureau.

But three people close to Mr Frank, who saw off a Republican rival to  
hold his seat in Massachusetts and was unavailable for comment on  
Wednesday, dismissed the idea. They said he was planning to defend his  
reform against challenges from Republicans, who have previously vowed  
to either repeal or defund parts of the law.

Mr Bachus told the FT that he would go “page by page . . . to  
identify job-killing provisions or lending-killing provisions”. He  
highlighted new rules pushing over-the-counter derivatives trading  
through clearing houses and on to exchanges as a problem for non- 
financial corporate users.

“The derivatives provisions in Dodd-Frank alone... as they stand now  
they’re going to take a trillion dollars out of our economy. Think  
how many jobs that’s going to kill,” he said.

The figure comes from the International Swaps and Derivatives  
Association, which claims the cost arises from the potential for  
higher margin and liquidity requirements.
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