In a letter sent Monday to federal banking regulators, Senator Bob Corker, (R-Tn.), a member of the Senate Banking Committee, called for changes to the draft federal rule that would limit market-making activities of regulated banks as part of the Dodd-Frank financial reform law. In his letter, Senator Corker warned about how the “Volcker Rule” as drafted goes too far in restricting banking operations that will increase the cost of credit for businesses, making it more difficult and expensive for them to grow and create jobs.

“I fully support efforts to ban outright proprietary trading at financial institutions that have government support in the form of FDIC deposit insurance or access to the Federal Reserve’s discount window, but the recently-proposed 400-page draft rule would be so complex in practice that it would drive up the cost of credit for non-bank end users who rely on banks to bring their capital needs to market.  This type of ‘market-making’ activity is explicitly permitted in the statutory language, and the regulatory agencies need to ensure that market-making is clearly delineated from proprietary trading in their final rule,” said Senator Corker in his letter.

Mr. Corker has also been a vocal critic of the Volcker Rule’s exemption for U.S. Treasuries and mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac, which was added in response to concerns that the Volcker Rule’s restrictions would drain liquidity from the U.S. Treasury markets.

A complete copy of the letter to federal regulators is included below and available online here.

February 13, 2012

The Honorable Timothy F. Geithner

Secretary

Department of the Treasury

1500 Pennsylvania Avenue NW

Washington, DC 20220

The Honorable Mary Schapiro

Chairman

Securities and Exchange Commission

100 F Street NE

Washington, DC 20549

The Honorable John G. Walsh

Acting Comptroller of the Currency

Office of the Comptroller of the Currency

Washington, DC 20219

The Honorable Martin J. Gruenberg

Acting Chairman

Federal Deposit Insurance Corporation

550 17^th Street NW

Washington, DC 20006

The Honorable Ben Bernanke

Chairman

Board of Governors of the

Federal Reserve System

20^th Street and Constitution Ave NW

Washington, DC 20551

The Honorable Gary Gensler

Chairman

Commodity Futures Trading Commission

Three Lafayette Centre

1155 21^st Street NW

Washington, DC 20581

Dear Sirs and Madam,

I write today in regards to the regulations you will soon put forth on the Dodd-Frank Act's "Volcker

Rule." These regulations will have a material impact on our nation and our economy for years to come.

As you know, Section 619 of the Dodd-Frank Act instructs the regulators to promulgate rules that ban

proprietary trading at regulated financial institutions.  The legislation is clear, however, in saying that

while proprietary trading is banned, market-making - or the trading of securities - to the extent that such

trading is "designed not to exceed the reasonably expected near term demands of clients, customers, and

counterparties" is permissible. This "permitted activity" is broadly defined, but says that the normal

business of providing liquidity to end-user firms is allowed at regulated banks.

I think you should take this statutory language seriously. Financial institutions provide a critical function

to our economy via their market-making activities. All private firms in America who have ever issued

debt or stock have relied on a financial institution to bring those capital instruments to market.  This

capital fuels economic growth, innovation, jobs, and entrepreneurship.

I am aware that I have colleagues who wish to have all activities that in any way resemble "investment

banking" separated entirely from the system of regulated banks. That is an interesting approach with

many challenges and complexities. But the United States Congress has not yet had that debate. If we are

moving in that direction, it deserves Congressional deliberation.

Private businesses in our country that rely on banks to make markets in the security instruments that

finance their businesses will be materially impacted by the final rules that you issue here.  I have been on

record with my displeasure that government securities received a complete carve-out in the final

legislative text, as I believe this hypocrisy will only make it harder for private firms to compete against

the crowding-out effects of record government debt. Private non-financial end-user firms that did not

receive such a generous carve-out should not have to live with the consequences of an overly strict

interpretation of the Volcker provision by regulatory agencies. As such, I encourage you to make sure

your rules do not define "proprietary trading" so broadly or put in place sufficient ambiguity and

confusion that you drain liquidity from the capital markets or drive risk-taking into the non-regulated

shadow banking system. Neither of those outcomes would be beneficial to our economy.

Sincerely,

Bob Corker

United States Senator