SEC Commissioner Daniel Gallagher said policymakers may need to overhaul the Volcker Rule - even be willing to re-examine their initial efforts and, "if necessary," go back to the drawing board.  He's concerned that the Rule offers a hasty approach to restricting banks of proprietary trading .  This he says could cause market disruptions and harm U.S. competitiveness. Referring to thousands of comment letters - many expressing widespread fears about the rule's potential impact, Mr. Gallagher said:  "These comments provide powerful evidence that the benefits the proposed rule was designed to provide may come at an unacceptably high cost."

C-I Note: To learn more about Mr. Gallagher prior to his being sworn in as the Commissioner, go to:  ["Daniel M. Gallagher - SEC's Newest Commissioner"] posted today, 3/6, in Who's News.

Backlash. This marks the 2nd time that a U.S. financial market regulator has publicly called for potentially scrapping the complicated Volcker proposal that was released in October, in hopes of crafting a more workable draft.  Last month, Mr. Gallagher's Republican colleague at the SEC, Commissioner Troy Paredes, made similar statements during a speech in Washington. The Volcker Rule, part of the 2010 Dodd-Frank Reform Act, has become a "lightning rod" for controversy - not only because it seeks to add distance between the world of speculative trading and commercial banking, but because of the proposed way in which it will be implemented. Risks. Banks complain that a poorly crafted rule could hurt their risk hedges and their ability to make markets for their customers, while foreign regulators say the crackdown could affect the liquidity of sovereign debt markets.  On Monday, the Deputy Governor of the Bank of Japan told a banking conference that liquidity could be hit if the Volcker rule does not exempt foreign debt from banks' trading restrictions. Dodd-Frank specifically exempts U.S. debt from the Volcker Rule, but regulators can only extend the exemption to other countries' debt if they determine that doing so would protect the financial stability of the U.S. and the safety and soundness of banks. Regulators are having a very hard time addressing the critics' concerns.  Last week, Federal Reserve Chairman Ben Bernanke said that a final rule will not likely be ready by a July deadline - though he did not say at that time, nor has he ever said, whether regulators may decide they need to scrap the current proposal and come up with a new draft. Law Changer. When asked if regulators have the flexibility under the law to expand the exemption beyond U.S. debt, or whether Congress would need to change the law for this to happen, U.S. Treasury Assistant Secretary for Financial Markets Mary Miller said she believes the law gives regulators the flexibility they need if they decide to expand the exemption. Daniel Gallagher further remarked that policymakers owe it the markets to not move forward on the Volcker rule until they understands if it will cause damage.  "We must avoid regulatory hubris and should not regulate - particularly where the changes are so novel or comprehensive - with the belief that we completely understand the consequences of the regulations we may impose." For further details, go to [Reuters, 3/5/12].