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US OCC estimates Volcker rule to cost banks $4.3bn in one year. Reuters

A US bank regulator has said the Volcker rule, which separates investment banking and trading practices from banks' consumer lending arms, could mean a one-off cost to the industry of up to $4.3bn.

The US Office of the Comptroller of the Currency (OCC), which regulates nationally chartered banks, estimated the Volcker rule's cost at between $413m and $4.3bn (£2.6bn, €3.1bn). These would be one-time costs taken in one year, the OCC said.

The cost estimate is the first by a regulator relating to the post-financial crisis ban on banks betting on markets with money taken in deposits.

Banks with assets greater than $10bn would bear the brunt of the cost but seven smaller banks would also be affected, the OCC said, without naming the smaller firms.

Compliance and Reporting

The Volcker rule's other costs involve compliance and reporting requirements, additional supervision-related costs and capital deductions.

The regulator said that banks would incur an estimated $10m in additional expense because they would be required to report more to the OCC, according to a Reuters report.

The OCC's cost estimate varied widely because of the rule's unclear impact on the market-value of funds that banks would no longer be permitted to invest in.

"The potential impact of decreased demand on the market value of these assets is between zero and $3.6bn," the OCC said in a statement with its report.

"I've only had a short time to review it, and I can already see that it's not a serious analysis," said Michael Piwowar, a member of the US Securities and Exchange Commission (SEC), one of the five agencies that have adopted the rule.

Piwowar voted against the Volcker rule because the markets regulator had not carried out a cost-benefit analysis.

The OCC said an economic study was not needed because the cost impact did not reach the law's $100m threshold when the rule was proposed in 2011, but reversed course after the US Chamber of Commerce and others complained.

The Chamber said in February that bank regulators appeared to have failed to meet their obligation to fully study the Volcker rule's cost to the economy, creating a possible cause for a legal challenge.

The Volcker rule bans so-called proprietary trading by banks. It also caps their ability to invest in hedge funds and private equity funds.

The rule, named after former US Federal Reserve chairman Paul Volcker, was introduced to rein in the risk associated with the financial sector in the wake of the 2008 recession.