Volcker responds to Dodd-Frank criticism

Volcker's written response to critics of the Dodd-Frank Wall Street Reform and Consumer Protection Act argue that banks' activity in alternative investments should stand separately from other commercial banking activities. As reasons, he cites the limited pool of beneficiaries from prorietary trading and investments in hedge funds and private equity funds.

As Volcker continues to say that there is no necessary link between Dodd-Frank and reduced liquidity in the market, the question why private equity, being a rather illiquid asset class, is included under the Volcker rule prevails.

"In essence, proprietary trading activity, hedge funds, and equity holdings should stand on their own feet in the market place, not protected by access to bank capital, to the official safety nets, and to any presumption of public assistance as failure threatens," Volcker stresses in the letter.

Dodd-Frank limits the commitment of US banks to private equity funds to 3% of tier-1 capital. The Volcker rule does not regulate leverage of private equity funds.

Find Volcker's response [asset_library_tag 4092,here].

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