Volcker rule may ‘harm’ sovereign debt markets

Kyodo

Bank of Japan Deputy Gov. Kiyohiko Nishimura has voiced concerns that Washington’s plan to introduce the so-called Volcker rule could negatively impact the liquidity of sovereign debt markets.

“If the Volcker rule were to be strictly implemented as proposed, it could adversely affect the liquidity of overseas sovereign debt,” Nishimura said in a speech Monday in Washington.

While U.S. government bonds and most other government entity debts are exempt from the restrictions to be imposed under the proposed financial regulation, the government bonds of foreign countries are not, including Japan, and European nations, he said.

“I would like to emphasize that policymakers should be extremely careful to avoid any unintended consequences when introducing new rules,” he said. “Especially in terms of possible negative impacts on overseas sovereign debt markets at this juncture.”

The deputy governor added, however, that he “fully agrees with the fundamental reasoning behind the Volcker rule.”

In a jointly written article with British finance chief George Osborne published in the Financial Times last month, Finance Minister Jun Azumi also urged the U.S. government to rewrite the proposed financial regulation.

The envisaged rule, named after ex-Federal Reserve Chairman Paul Volcker, aims to restrict U.S. banks trading on their own capital. The move is part of Washington’s efforts to prevent the kind of shady activity by financial institutions that triggered the 2008 and 2009 global financial turmoil.