EU's Barnier to visit US for financial reform talks

(WASHINGTON) - European Union markets chief Michel Barnier is due in Washington this week for talks on a new US banking rule that has foreign governments and banks up in arms.

The so-called Volcker Rule, a proposed ban on banks' proprietary trading, is expected to be a key issue when Barnier, the EU commissioner in charge of financial regulation, meets with US Treasury Secretary Timothy Geithner, Federal Reserve Board chairman Ben Bernanke, and top US regulators.

The EU said in a statement that he will "discuss measures to strengthen financial markets and the EU's perspective on international financial reform" on his three-day visit, beginning Wednesday.

Earlier this month Barnier told US authorities in a letter that the Volcker Rule ban on proprietary trading, or trading on their own behalf, could harm Europe's banks and sovereign bond issuers.

The rule is part of sweeping US reforms undertaken in the aftermath of the 2008 financial meltdown, which saw the financial sector crumble and banks fold in part due to overly risky proprietary trading activities.

The Obama administration insists such trading often puts those banks that enjoy US government deposit guarantees and other protections in direct conflict with the public interest.

The rule will be applied to US banks as well as foreign banks with subsidiaries operating in the US market -- an issue which has raised objections from around the world.

Moreover, the one exception to the rule -- that banks will be able to actively trade US Treasury bonds but not those of other countries for their own accounts -- has upset the EU and other countries worried that market liquidity for their own bonds would dry up.

The EU fears this will distort competition and penalize non-US sovereign bonds in the market.

The French EU official also will meet with International Monetary Fund managing director Christine Lagarde during his Washington visit.

He is to address the US Chamber of Commerce on "Restoring Stability and Growth in Europe" on Thursday.