Volcker Rule: unleashes stream of complaints: chastened by criticism from a variety of sources--including financial executives worried about its impact on access to capital--federal banking regulators say they will miss the July 21 deadline for finalizing the "Volcker Rule," part of the sweeping Dodd-Frank Act.

• Author: Barlas, Stephen
• Position: Regulation

Federal financial regulatory agencies are fiddling while corporate financial executives burn as the clock winds down to the July 21 deadline for compliance with the Volcker Rule. That is the provision--a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act--that generally prohibits banks and some non-bank financial companies from engaging in proprietary trading or dabbling in hedge or private equity funds.

Because Volcker handcuffs banks, the provision named for former Federal Reserve Board Chairman Paul Volcker could crimp corporate access to commercial debt underwriting, sweep accounts, commercial paper and foreign exchange services. Companies with financial subsidiaries such as John Deere & Co., Target Corp., General Electric Co. and Toyota Corp. could face an additional set of negative effects.

Disclosures in May about ).P. Morgan Chase & Co.'s trading losses probably provided political cover to federal regulators who might have otherwise worried about tighter restrictions on banks igniting Republican and corporate opposition.

The five federal agencies involved in writing a final Volcker Rule moved to ease banking industry and corporate borrower concerns by announcing April 19 that they were extending the "conformance period" for Volcker from July 21 to two years from that date. But the announcement did nothing to allay concerns about the provisions in the proposed rules, many of them vilified by American business.

Opposition to the Rules Mount

What exists so far are two very similar proposed rules, whose differences reflect the kinds of companies that will be directly affected in each case. The Federal Reserve Board, Comptroller of the Currency, U.S. Securities and Exchange Commission and Federal Deposit Insurance Corporation issued one proposed rule last Nov. 7. The Commodities Future Trading Commission issued its proposed rule on Feb. 14, and its comment period did not even close until April 16.

Although the Fed is in the driver's seat in terms of adjusting any compliance deadlines, it actually will regulate the smallest group of businesses subject to the rule: non-bank broker-dealers affiliated with bank holding companies. The SEC will regulate broker-dealers and the Comptroller will regulate national banks. Those last two groups will have the biggest impact on corporations looking for bond underwriting services.

The two proposed rules have dissatisfied almost everyone. The banks argue they are being restricted in areas that had nothing to do with the 2008 financial crisis. Labor unions and public interest groups say the proposed rules are too lax. Corporations say the proposals will shrink the credit and equity markets upon...