Canada’s Finance Minister Says Volcker Rule Violates Nafta






A U.S. rule that prohibits banks from taking risky bets with their own money violates the North American Free-Trade Agreement because it bans U.S. banks from trading triple-A-rated Canadian government debt, Canada’s finance minister said Wednesday.

Joe Oliver told a securities conference in New York he hopes the U.S. will amend the so-called Volcker rule to either eliminate the ban, or provide an exemption to its biggest trading partner, Canada.

A U.S. Treasury Department spokeswoman said late Wednesday the Volcker rule is “clearly not a violation of Nafta or any other trade agreement.”

Canadian concerns about the Volcker rule’s treatment of sovereign debt aren’t new. In 2012, Canada joined European countries and Japan in raising concerns about the law’s reach. The Volcker rule, named after a former Federal Reserve chairman, was part of the U.S. financial-reform package introduced in the aftermath of the 2008-09 financial crisis. It bans banks from making bets with their own money or directly investing in their own hedge funds, and is aimed at sheltering customers from the banks’ riskier activities. But some governments have taken issue with the rule’s ban on bank trading of foreign debt.

Mr. Oliver noted that the Volcker rule reflects concerns about the credit standing of some foreign securities. That concern doesn’t apply to Canada, he said, because Canada’s credit rating is better than the U.S. government and U.S. municipalities.

Moody’s Investors Service currently rates Canada’s federal debt at Aaa.

“I believe—with strong legal basis—that this rule violates the terms of the Nafta agreement,” Mr. Oliver told a securities industry audience in New York that included the U.S. ambassador to Canada, Bruce Heyman. “I hope the United States administration sees that changing the Volcker rule is in its own best interests and that of its biggest trading partner.”

A spokeswoman for Mr. Oliver said Canada is engaged in talks with the U.S. Treasury regarding the rule, and Mr. Oliver has raised it in bilateral meetings with U.S. Treasury Secretary Jacob Lew.
In 2012, former Canadian Finance Minister Jim Flaherty wrote to former Treasury Secretary Timothy Geithner to express concerns about the law, which he warned “would have an unprecedented extraterritorial reach and significant crossborder effects, which would be particularly problematic for Canada, given the close interlinkages between the U.S. and Canadian financial systems.”


Mr. Flaherty’s letter didn’t say the Volcker rule violated the terms of Nafta, which was signed in 1993 and covers trade among the U.S., Canada and Mexico.

Nafta’s members agreed not to extend their regulatory reach beyond their borders, and to try to negotiate harmonized rules if cross-border regulation became necessary.

The Treasury spokeswoman said Nafta “does not weaken our ability to implement financial reforms now or in the future, and neither would any trade agreement we’re negotiating.” She said the law is intended to protect U.S. taxpayers and the stability of capital markets.

Canada’s big banks have complained for years about the Volcker rule. Last year, Royal Bank of Canada was forced to drop a plan to spin off its U.S. proprietary-trading business into a hedge fund after U.S. regulators objected to the move.





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