Lawyers Predict Volcker Rule Likely to Face Challenges
Given the Volcker Rule's scope and magnitude, lawyers warn that legal challenges are practically inevitable.
Regulators released the massive rule—which weighs in at 71 pages, plus another 882 pages of supporting documentation—on Tuesday. The rule bars banks from making short-term proprietary trades, while exempting certain activities including market-making. It also requires new accountability from corporate chiefs.
"When a regulatory initiative with such far-reaching implications as the Volcker Rule is adopted, it is a virtual certainty that it will face legal challenges," said David Hooper, a corporate partner at Barnes & Thornburg.
"There's a very high likelihood somebody may try to test the entirety of the rule or specific aspects," agreed Keith Fisher, financial regulatory specialist and of counsel at Ballard Spahr.
Mandated by the Dodd-Frank Act, the final rule was released by the Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the Commodity Futures Trading Commission and the Securities and Exchange Commission.
"Our financial system will be safer and the American people are more secure" because of the rule, President Barack Obama said in a written statement.
Lawyers predicted that groups including the U.S. Chamber of Commerce, the American Bankers Association or the Securities Industry and Financial Markets Association would be most likely to challenge the rule. Individual banks would hesitate to openly confront their regulators, said Ernest Patrikis, a partner with White & Case who served in senior positions including general counsel for 30 years with the Federal Reserve Bank of New York. "They'll use a trade association," he said.
A Chamber spokeswoman said in an email that the group "will carefully examine the final rule and take all options into account as we decide how best to proceed."
A lawsuit might challenge the rule as a whole under the Administrative Procedure Act or target specific provisions such as the CEO attestation requirement or the extension of regulation to foreign banks, lawyers said.
Michael Bleier, a partner with Reed Smith and a former assistant general counsel to the Federal Reserve Board who also served as the general counsel of Mellon Bank, predicted that any lawsuit would face "an uphill battle."