September 21, 2017

By electronic submission

Legislative and Regulatory Activities Division
Office of the Comptroller of the Currency
400 7th Street SW, Suite 3E-218
Washington, DC 20219
Docket No. OCC-2017-0014

Re: Volcker Rule; Request for Information

Ladies and Gentlemen:

The Office of the Comptroller of the Currency (the “OCC”) has requested input on how the regulations implementing the Volcker Rule1 should be revised to better accomplish the purposes of the underlying statute and how the administration of these regulations by the Volcker Agencies2 can be improved.3 We understand that the other Volcker Agencies are also considering what changes could be made to the Volcker Rule implementing regulations to accomplish similar goals. The Securities Industry and Financial Markets Association (“SIFMA”)4 appreciates this recognition of the problems with the current implementing regulations and the opportunity to provide comments on ways to improve them.

We are nearing the fourth anniversary of the adoption of the Volcker Rule implementing regulations. SIFMA members now have extensive experience with the real life impacts of operating under them. As the evidence and examples included in Annexes A and B to this letter reflect, banking entities have incurred significant costs to bring their activities into conformance with the implementing regulations, including in building, maintaining, monitoring and auditing the required, expansive compliance program. The implementing regulations have negatively affected the day-to-day activities of banking entities, compromising their ability to serve clients and customers and contribute to the growth of the broader economy. The complexity of the implementing regulations, and the difficulties inherent in having five Volcker Agencies tasked with interpreting and implementing the regulations, mean that many key interpretive issues remain unresolved.

These experiences have led SIFMA and its members to the same conclusion as many regulators and policymakers: the implementing regulations are overbroad, unnecessarily complex, and have resulted in costs and burdens on banking organizations and markets that are unrelated to the goals of the statute.5 SIFMA believes that there is a simple way the Volcker Agencies can address these problems, and we appreciate the opportunity to provide our recommendations to the OCC and the other Agencies to assist in this effort.

The Volcker Rule statute has a simple message: banking entities may not directly engage in short-term speculative proprietary trading and they may not do so indirectly through investments in funds that engage in this trading activity.6 On the other hand, banking entities are permitted to engage in activities that Congress specifically preserved, including market making, underwriting, risk-mitigating hedging, lending and investing.

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1 Section 13 of the Bank Holding Company Act of 1956 (12 U.S.C. § 1851) (the “Volcker Rule” or the “statute”); Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds, 79 Fed. Reg. 5,536 (Jan. 31, 2014); Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds, 79 Fed. Reg. 5,808 (Jan. 31, 2014) (the “implementing regulations”).

2 The Volcker Agencies are the Board of Governors of the Federal Reserve System (the “Board”), the Commodity Futures Trading Commission (the “CFTC”), the Federal Deposit Insurance Corporation (the “FDIC”), the OCC and the Securities and Exchange Commission (the “SEC”).

3 Proprietary Trading and Certain Interests in and Relationships With Covered Funds (Volcker Rule); Request for Public Input, 82 Fed. Reg. 36,692 (Aug. 7, 2017) (“OCC Volcker Rule Request for Information”). Docket ID OCC-2017-0014.

4 SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly 1 million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the U.S., serving clients with over $18.5 trillion in assets and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.

5 Recent statements by regulators and policymakers expressing this view include the following examples:
● Janet L. Yellen, Chair, Federal Reserve: “[I]mplementation of [the Volcker Rule] is, frankly, complex. And I’m certainly open to looking at ways to reduce regulatory burden in that area.” FOMC Press Conference (June 14, 2017) (link);
● Daniel K. Tarullo, Former Governor, Federal Reserve: “Several years of experience have convinced me that there is merit in the contention of many firms that, as it has been drafted and implemented, the Volcker rule is too complicated.” Departing Thoughts (Apr. 4, 2017) (link);
● Senator Heidi Heitkamp: “When you look, many current and former regulators also publicly state that the Volcker Rule is way too complicated. It’s my experience when a rule is too complicated there isn’t much compliance, so it doesn’t really get you what you need.” Fostering Economic Growth: Regulator Perspective: Hearing Before the Senate Banking Committee (June 22, 2017) (link);
● Keith A. Noreika, Acting Comptroller of the Currency: “I have sought the views of my colleagues at the other federal banking agencies about simplifying the regulatory framework implementing the Volcker Rule. In recent years, many of the nation’s financial institutions have struggled to understand and comply with these regulations, devoting significant resources  that could have been put to more productive uses. There is near unanimous agreement that this framework needs to be simplified and clarified.” Fostering Economic Growth: Regulator Perspective: Hearing Before the Senate Banking Committee (June 22, 2017) (link); and
● Jerome H. Powell, Governor, Federal Reserve: “What the current law and rule do is effectively force you to look into the mind and heart of every trader on every trade to see what the intent is . . . Is it proprietary trading or something else? If that is the test you set yourself, you are going to wind up with tremendous expense and burden and I would say really quite marginal benefit.” 2017 AFA Panel Session: Low Interest Rates and Financial Markets, American Finance Association Meeting (Jan. 7, 2017) (link).

6 See, e.g., Senator Christopher Dodd: “[The] purpose of the Volcker rule is to eliminate excessive risk taking activities by banks and their affiliates while at the same time preserving safe, sound investment activities that serve the public interest. It prohibits proprietary trading and limits bank investment in hedge funds and private equity for that reason.” 156 CONG. REC. S5904 (daily ed. July 15, 2010). The statute also seeks to prohibit banking entities from bailing out affiliated funds.