Banks Lobbied to Widen Volcker Rule Before Inciting Foreigners Against Law

By Yalman Onaran

U.S. banks pushed regulators to widen proposed restrictions on trading and hedge-fund ownership by foreign firms, then encouraged governments around the world to complain about the rule’s reach. The two-pronged lobbying strategy resulted in foreign officials joining U.S. lenders to push back against the Volcker rule, named after former Federal Reserve Chairman Paul A. Volcker and incorporated in the 2010 Dodd-Frank Act. Banks and their lobbyists later sent position papers to the Washington embassies of foreign governments and met with officials to warn that sovereign-debt prices would suffer if U.S. banks are barred under the Volcker rule from buying other nations’ bonds for their trading accounts, three of the people said. That led to an outpouring of letters from Canadian, Japanese and European Union officials, as well as from dozens of non-U.S. lenders, urging regulators to overhaul the rule. “The global reaction has been extraordinary,” said Karen Petrou, managing partner at Federal Financial Analytics, a Washington-based research firm. “If regulators don’t feel like they have enough flexibility to satisfy foreign governments’ demands, they could go back to Congress, which would open the whole rule to revisions.”