Since the adoption of the Volcker Rule regulations, we have pointed out ways in which they—contrary to specific Congressional intent—unnecessarily restrict banking and capital markets activities to the detriment of customer facilitation.  This limits banks’ ability to promote capital formation, economic growth, and job creation.

Bipartisan consensus to the same effect includes comments from Daniel K. Tarullo, Former Vice Chairman for Supervision, Federal Reserve— “the Volcker rule is too complicated”— and Fed Chairman Jay Powell — “you are going to wind up with tremendous expense and burden and I would say really quite marginal benefit.”

The regulators’ willingness to revisit the rule with an eye towards making it more simple, transparent and efficient is an important recognition of the underlying problems with the current regulations.

Federal Reserve Vice Chairman for Supervision Randal K. Quarles noted the goal of the proposed changes “is straightforward: simplifying and tailoring the Volcker rule in light of our experience with the rule in practice. This is a goal that is shared among all five agencies and among policymakers at those agencies with many different backgrounds.”

While it is an important first step at simplification, there are substantial changes to be made if that goal is to be achieved. SIFMA provided comments, along with specific recommendations, summarizing the financial services industry’s views on ensuring the rule does no further harm to the functioning of our markets.

First, the accounting prong should be eliminated. It is overbroad and expands the regulatory definition of “trading account” far beyond the statutory definition and Congressional intent.  It would also prohibit banking entities from engaging in a wide range of longer-term transactions that do not implicate the concerns of the short-term proprietary trading provisions of the statute. Carry this forward, and it will likely result in decreased long-term investment in the U.S. capital markets and decreased liquidity in times of stress.

It is also unnecessary to capture the potential proprietary trading of the vast majority of banking entities which are subject to the Volcker Rule—have their short-term proprietary trading activities captured by the other tests: the market risk capital prong and the dealer prong.

Second, SIFMA believes the definition of “covered fund” under the Volcker Rule is significantly overbroad and unduly complex. Because of this, the rule unnecessarily restricts the ability of banking entities to serve the public interest in promoting U.S. economic growth and job creation by prohibiting or restricting their ability to provide asset management services, customer facilitation services and long-term debt and equity financing to U.S. businesses indirectly through fund structures, even though they are expressly permitted to do so directly.

Finally, SIFMA strongly supports the Agencies’ goal of reducing compliance-related inefficiencies of the Volcker Rule. Revisions which would provide banking entities with flexibility to integrate their Volcker Rule compliance programs into their existing compliance programs are entirely consistent with that goal.

However, the Proposal would significantly expand the number and scope of the metrics reporting requirements, negating the benefits of any simplifications in the compliance approach and resulting in a significant increase in the reporting burden for many banking entities with no clear benefit for compliance.

Because the re-proposal would only provide the Agencies with information that is either already available to them or that would not enhance their supervision of banking entities, it is unlikely to do anything to assist the Agencies in their onsite supervisory activities. We suggest the elimination of duplicative reporting which would allow banking entities and the Agencies to focus more efficiently on any genuine safety and soundness issues.

SIFMA welcomes the regulators’ focus on reducing the complexity of the Volcker Rule. As we provide our industry’s views on the re-proposal, we hope to ensure the important regulation of our capital markets does not impede their essential functions.

Kenneth E. Bentsen, Jr. is president and CEO of SIFMA and Chairman of Engage China. He is a former investment banker and Member of Congress, and has also served as CEO of the Global Financial Markets Association (GFMA), SIFMA’s global affiliate.