U.S. financial regulators are considering exempting foreign government obligations from the Volcker Rule’s prohibition on proprietary trading. Bank Holding Company Act § 13(d)(1)(J), added by Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, governs such exemptions and sets a very high standard for regulators seeking to utilize them. This provision requires that four regulatory agencies unanimously agree to the exemption and determine that it satisfies a strict substantive standard—that it “promote[s] and protect[s] the safety and soundness of the banking entity and the financial stability of the United States.” Regulators may jointly agree to make such an exemption for sovereign debt because they are facing intense political pressure to do so. Foreign governments, including several close allies of the United States, have spoken out publicly against the Volcker Rule. These governments are asking U.S. regulators to exempt sovereign debt from the trading prohibitions of the Volcker Rule because of the adverse effects it will have on their debt markets. Their concerns support the case that the substantive standard in § 13(d)(1)(J) is satisfied.



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