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Volcker: Overly liquid markets hurts banking

WASHINGTON (MarketWatch) — "Former Federal Reserve Chairman Paul Volcker on Wednesday said overly liquid markets are not constructive to the core business of banking, responding to critics who argue that the anti-speculation regulation that bears his name would hamper needed liquidity for the markets."

" 'Obviously you want to be able to buy and sell reasonably. It does not mean you ought to be able to buy and sell a long-term security ten minutes after you bought it at no risk,' Volcker said at a Senate Banking Committee hearing."

"At issue is the so called 'Volcker rule,' named after the former Federal Reserve chairman who initially suggested that legislators seek to prohibit big banks from trading stocks and derivatives with their own money and significantly limit banks’ investments in hedge funds and private-equity funds. Bank regulators and securities and commodities regulators have proposed joint regulations to implement the rule."

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"Dennis Kelleher, president at Better Markets Inc. in Washington, contends that the banking industry will file a lawsuit against the Securities and Exchange Commission and Commodity Futures Trading Commission, arguing that they failed to conduct an adequate cost-benefit analysis when developing the regulations, locking up the rule 'in the courts forever.”

"Kelleher noted that they won’t file a suit against the Federal Reserve, which is one of the agencies responsible for the regulation, because of the central bank’s authority over them."

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