The recently proposed Volcker Rule will sap nearly $1 billion in revenue from the nation├â┬ó├óÔÇÜ┬¼├óÔÇ×┬ós banks as lenders spend more time, resources, and manpower complying with regulations, according to a recent government study.[IMAGE]
The ""Office of the Comptroller of the Currency"":http://www.occ.treas.gov/ (OCC) estimated that the draft rule will result in expenditures totaling $100 million for state, local, and other governments.
Bryan Hubbard, a spokesperson for the OCC, declined to comment for the story.
The Volcker Rule ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a regulation created by the Dodd-Frank Act ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô bans proprietary trading, mandates new compliance measures for banks, and prohibits investments and relations with hedge and private equity funds.
The rule ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô named after a former ""Federal Reserve"":http://www.federalreserve.gov/ chairman ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô continues to stir controversy following its proposal by the central bank, ""FDIC"":http://www.fdic.gov/, and a number of other federal regulators earlier this month.
Releasing its findings in a 14-page economic impact analysis, the OCC pooled information for 143 institutions with fewer than $1 billion in assets, 72 with more than $1 billion but less than $5 billion, and 50 with more than $5 billion.
More than 2,000 banks covered by the Volcker Rule would need to spend upwards of $50 million on annual compliance and legal measures.[COLUMN_BREAK]
In coming up with the numbers, the agency said that prohibited activities would require new compliance measures, which would demand, in turn, approximately $1,715 in expenses and 20 hours in manpower from each financial institution.
Banks with less than $1 billion in total assets would need to adopt six new compliance measures relevant to written procedure, internal controls, management policies, and recordkeeping. Compliance officers with these financial institutions would need to work 800 hours each week, creating about $1.2 million in expenses as a result.
Those banks with more than $1 billion but less than $5 billion in total assets would need to implement a similar compliance program but at an overall cost of $8.1 million and need for 3,650 hours each week in manpower.
The rule continues to merit criticism from detractors and praise from the lawmakers who first proposed it.
""Only in today's regulatory climate could such a simple idea become so complex, generating a rule whose preamble alone is 215 pages, with 381 footnotes to boot,├â┬ó├óÔÇÜ┬¼├é┬Ø former Oklahoma Gov. ""Frank Keating"":http://www.aba.com/Press+Room/fkeating_bio.htm, now president and CEO of the ""American Bankers Association"":http://www.aba.com/default.htm, said in an ""October statement"":http://www.aba.com/Pressrss/101111VolckerRuleStatment.htm. ├â┬ó├óÔÇÜ┬¼├àÔÇ£How can banks comply with a rule that complicated, and how can regulators effectively administer it in a way that doesn't make it harder for banks to serve their customers and further weaken the broader economy?├â┬ó├óÔÇÜ┬¼├é┬Ø
Seeming to fire back against criticism and threats to repeal the Dodd-Frank framework, former ""Sen. Chris Dodd"":http://chrisdodd.com/ (D-Connecticut) defended the law in a recent ""_Washington Post_"":http://www.washingtonpost.com/opinions/five-myths-about-the-dodd-frank-financial-regulations/2011/10/19/gIQAtq7j4L_story_1.html column, saying, ├â┬ó├óÔÇÜ┬¼├àÔÇ£Unscrupulous lenders can no longer make loans to people who they know can├â┬ó├óÔÇÜ┬¼├óÔÇ×┬ót pay them back. Brokers can├â┬ó├óÔÇÜ┬¼├óÔÇ×┬ót steer borrowers to higher-rate loans in exchange for compensation from lenders. And those who sell risky securities must maintain a financial stake in their success.├â┬ó├óÔÇÜ┬¼├é┬Ø
Said Keating: ""This rule has very real potential to erode banks' ability to serve their customers, and its hit to diversifying bank income may very well increase ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô rather than diminish ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô sources of risk.""