A U.S. bank regulator on Thursday said the Volcker Rule could cost the industry a one-time annual charge of up to $4.3 billion, the first cost estimate by a regulator for the ban on banks betting on markets with their own money.
The rule, which takes its name from former Federal Reserve Chairman Paul Volcker, puts a stop to so-called proprietary trading by banks. It also limits their ability to invest in hedge funds and private equity funds.
The U.S. Office of the Comptroller of the Currency, which regulates nationally chartered banks, estimated the Volcker Rule's cost at between $413 million and $4.3 billion. These would be one-time costs taken in one year, the OCC said.
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Banks with assets greater than $10 billion will bear the brunt of the cost, the bank regulator said, but seven smaller banks will also be affected.
The U.S. Chamber of Commerce said last month that bank regulators appeared to have failed to meet their obligation to fully study the Volcker Rule's cost to the economy, creating a possible cause for a legal challenge.
The Unfunded Mandates Reform Act says the OCC must do a study before a new rule is proposed and before it is finalized, but it also says a rule cannot be overturned in court, based solely on the government's failure to do so.
The OCC said an economic study was not needed because the cost impact did not reach the law's $100 million threshold when the rule was proposed in 2011, but it reversed course after the Chamber and others wrote letters to complain.
"I've only had a short time to review it, and I can already see that it's not a serious analysis," said Michael Piwowar, a member of the Securities and Exchange Commission, one of the five agencies that have adopted the rule.
Piwowar voted against the Volcker Rule because the SEC had not first done a cost-benefit analysis.
The OCC's cost estimate varied widely because of the rule's uncertain impact on the market value of funds that banks would no longer be allowed to invest in.
"The potential impact of decreased demand on the market value of these assets is between zero and $3.6 billion," the OCC said in a statement with its report.
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The Volcker Rule's other costs include compliance and reporting requirements, capital deductions and additional supervision-related costs. The OCC estimated that banks would incur an estimated $10 million in additional expense because they would be required to report more to the OCC.