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U.S. Chamber Report Highlights Unintended, Harmful Consequences of Volcker Rule

July 20, 2012, 07:00 AM
Filed Under: Regulatory News

The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness (CCMC) today released “The Economic Consequences of the Volcker Rule,” which examines the numerous unintended, but nonetheless harmful, effects of the current Volcker Rule proposal, particularly on Main Street businesses.
The analysis, authored by Washington University Finance Professor Anjan Thakor, surveys existing academic research and empirical evidence and reveals that restrictions imposed under the Volcker Rule proposal will extend beyond Congressional intent to impact both financial and non-financial businesses by:

  • Reducing the ability of companies to raise capital by issuing debt:  A negative effect on market making and liquidity provisions for many securities.
  • Increasing the cost of raising capital, resulting in reduced investments:  Likely higher costs of capital for businesses and potentially lower capital investments by borrowers.
  • Reducing the choices and options available for companies to raise capital:  Possibly greater focus on riskier or more short-term investments by borrowers.
  • Reducing the diversity and availability of capital providers to businesses:  Some banks that never had proprietary trading desks but do help companies raise capital by issuing debt, may choose not to continue to provide those services.

“Proponents of the Volcker Rule contend that it will merely limit so-called risky behavior by financial institutions but as this report shows, what is actually proposed goes well beyond that,” said David Hirschmann, president and CEO of CCMC. “The truth is much more complex with severe impacts upon Main Street businesses that rely on financial institutions to raise capital and borrow money.  As we approach the two year anniversary of Dodd-Frank, it is imperative that policy makers understand the implications of Dodd-Frank upon Main Street growth and job creation. If we don’t get these policies right— efficient vibrant capital markets, providing for a clear end-user derivatives exemption, making regulatory agencies accountable—America’s job creators will be hamstrung and economic growth will suffer.”

Since its inception in 2007, the Center for Capital Markets Competitiveness has led a bipartisan effort to modernize and strengthen the outmoded regulatory systems that have governed our capital markets. The CCMC is committed to working aggressively with the administration, Congress, and global leaders to implement reforms to strengthen the economy, restore investor confidence, and ensure well-functioning capital markets.

The U.S. Chamber of Commerce is the world’s largest business federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations.

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