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RBC to benefit from Volcker Rule: analyst

The Royal Bank of Canada (RY-T) will be one of the winners in pending U.S. legislation that is intended to curb speculative trading by financial institutions, Brad Hintz, analyst at Sanford C. Bernstein & Co and former CFO of Lehman Brothers, tells BNN.

The Federal Reserve announced on Thursday that U.S. financial institutions will have to conform to the so-called "Volcker Rule" by July 2014. The Volcker Rule -- named after former Federal Reserve Chairman Paul Volcker -- limits the ability of banks to pursue proprietary trading, where they make speculative bets with their own money.

It also limits their ability to invest in hedge funds and private equity firms.

But Hintz says that by limiting the ability of U.S.-based financial institutions to trade with their own money, foreign banks operating in the country will have an advantage.

"The big winner [from the Volcker Rule] is the Royal Bank of Canada," he tells BNN. "They can proprietary trade outside the United States, but a U.S. bank cannot proprietary trade outside the United States, so if I'm trading Canadian government bonds and I'm JP Morgan, I can't take any risk, but if you're Royal bank of Canada, you can."

"Essentially the Volcker Rule -- until we get the regulations -- really puts the U.S. banks at a great disadvantage," he says.

The legislation was initially proposed as a way to prevent another financial crisis.

The Volcker Rule recently sparked an outcry from Mark Carney, the Governor at the Bank of Canada, and Finance Minister Jim Flaherty.

They criticized the legislation, saying it could limit liquidity in the Canadian government debt market and could negatively impact the global financial system.

Carney called for an amendment to the legislation that Canadian government bonds be exempt from the ban on proprietary trading. 

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