The US Federal Reserve has sought to allay lawmakers’ fears of mass job losses and reduced market liquidity as a result of a proposed rule aimed at banning banks from trading for their own account.

Daniel Tarullo, Fed governor, told the House financial services committee that the so-called Volcker rule “probably” will have “some incremental effect on liquidity in some markets at the margin”.

The proposal, a result of 2010’s Dodd-Frank overhaul of US financial regulation, has come under attack by leading financial services companies and congressional Republicans, who have touted studies claiming the rule would unintentionally limit banks’ market-making activities and lead to billions of dollars in losses suffered by investors, debt issuers and banks.

“It’s going to cost hundreds of thousands of jobs,” said Spencer Bachus, an Alabama Republican who chairs the financial services committee.

A recent study by consultancy Oliver Wyman for the Securities Industry and Financial Markets Association, a US trade group, claims that investors in US corporate bonds could suffer a $315bn paper loss as a result of the implementation of the Volcker rule and the resulting decrease in market liquidity.

Mary Schapiro, chairman of the Securities and Exchange Commission, joined Mr Tarullo in criticising the report, which has been used by Volcker rule foes to attack the proposal as unworkable and detrimental to the US financial system.

“It’s not clear to me how well grounded that study is,” Ms Schapiro said.

Mr Tarullo added: “I think we all need to be a little bit wary of the false precision that sometimes is associated with analytical advocacy.”

The central bank governor criticised the study for making assumptions “that really weren’t grounded in any particular explanation ... [and] didn’t include the possibility that other firms would pick up such businesses that may be lost”.

Mr Tarullo, who is leading the Fed’s regulatory initiatives, reckoned that whatever liquidity may be lost due to banks losing the ability to trade for their own accounts could be replaced by non-bank firms that step in to fill the void.

“I think at least one firm has already stated publicly that they see enormous opportunities here,” Mr Tarullo said.

He added that policymakers alarmed by projections that the US financial system would suffer from a lack of liquidity due to the proprietary trading ban should consider the degree to which other firms “who see new market opportunities”, such as hedge funds, could step in and provide investors with a ready trading partner.

Sifma said: “We believe the Oliver Wyman study is well crafted and entirely appropriate and will help regulators develop a workable rule. Further, we disagree with the notion that there is sufficient capacity and capital to fill the void in necessary market making left by the potential exit of firms subject to Volcker.”

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