“Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS), the two Wall Street banks most reliant on trading, warned U.S. regulators that a proposed ban on proprietary trading could make the financial system more risky and curtail services for clients.
The New York-based banks, along with competitors Bank of America Corp., Citigroup Inc. (C)and JPMorgan Chase & Co., are pushing to limit the reach of the Volcker rule, a ban on proprietary trading included in the 2010 Dodd-Frank Act. A draft of the rule, which takes effect in July, was released by U.S. regulators in October.
“Without substantial revisions, the proposed rule will define permitted market making-related, underwriting and hedging activities so narrowly that it will significantly limit our ability to help our clients,” John F.W. Rogers, Goldman Sach’s chief of staff, said in a comment letter.
“Although one of the key aims of Dodd-Frank was to promote greater stability in financial markets, we are concerned that the proposed rule could inadvertently increase systemic risk,” he added. If the rule makes hedging more expensive, “banking entities’ clients and customers will be forced to hold more risk on their own books.”
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