The Volcker rule will raise U.S. electricity costs and cut oil and natural gas output by crimping the ability of energy companies to hedge their risks, Douglas County-based IHS Inc. said today in a bank-funded report.
Investment in natural gas production would fall by $7.5 billion a year as companies, unable to manage their price risks, curtail spending on exploration, according to the report from a team of analysts led by Daniel Yergin, energy analyst and Pulitzer Prize winning author. Refineries may close, fuel prices rise, and 182,000 jobs could be lost.
“As the Volcker rule is implemented, it is important that due care be taken to ensure that market liquidity and the availability of essential services are not constrained,” said IHS, a data and analysis provider.
The rule, named for ex-Federal Reserve Chairman Paul Volcker, seeks to prevent deposit-taking firms from making bets with their own capital and limits their investment in hedge funds. Rules proposed in October may limit market-making and constrain the ability of banks to provide commodity firms with risk management and intermediation services, IHS said.
The report was commissioned by New York-based Morgan Stanley, which, according to the Office of the Comptroller of the Currency, is the third-largest derivatives dealer among U.S. banks.
U.S. banks including JPMorgan Chase & Co. and Morgan Stanley have been pressing regulators to scale back the draft of the proprietary trading rule issued in October. Compliance and capital costs alone could reach $1 billion annually, the U.S. Office of the Comptroller of the Currency has said. Federal Reserve Chairman Ben Bernanke has publicly acknowledged that the rule won’t be finished by the July 21 deadline.
