Signs of Split among Volcker Rule’s Foes

By Alexandra Alper

WASHINGTON (Reuters) – As pro-business groups clamor to convince regulators to overhaul their draft of the controversial Volcker rule, fault lines are emerging within the opposition over just what a revamped draft should look like.

The Volcker rule — named for former Federal Reserve Chairman Paul Volcker — was mandated by the 2010 Dodd-Frank financial oversight law to prevent banks that receive government backstops like deposit insurance from making risky trades with their own funds.

Heralded by the left as a means to rein in the risk-taking that nearly toppled the financial system in 2007-2009, the Volcker rule has been excoriated by the right, who warn it could take liquidity out of the market and make it hard for firms to raise capital.

The rule — whose first draft was proposed by regulators in October — would have the biggest impact on large banks such as Goldman Sachs and Morgan Stanley .

But as business groups, banks and others rush to complete comment letters before the February 13 deadline, a split has emerged Aabout the best approach to make sure the ban on proprietary trades doesn’t also capture trades that banks make for their customers’ benefit, known as “market making”, or firms’ own portfolio hedging.

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