Get real

23 February 2012 By Edward Hadas Follow @edwardhadas

The finance ministers of Japan and the UK are making a big deal about new U.S. rules against proprietary trading. They want to keep American banks trading foreign sovereign debt. But if there is a problem, it’s a minor one. Politicians must have better things to worry about.

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In an article in the Feb. 23 Financial Times, Jun Azumi, the Japanese finance minister, and George Osborne, the UK Chancellor of the Exchequer, argued that the Volcker rule would harm government debt markets. They wrote that the rule “could reduce liquidity in non-U.S. sovereign markets, making it more difficult, costlier and riskier for countries to issue and distribute debt. At such a vulnerable time in the sovereign debt markets, it would be the wrong prescription. The rule could also disincentivise foreign companies from transacting with their US counterparties, reducing market liquidity and potentially increasing price volatility regarding financial transactions such as foreign exchange swaps.”

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