The Volcker Rule will suffer death by committee

Sussudio's picture
Rank: Senior Monkey | 79

From Sen Dodd's senate financial reform bill:

3 (a) DEFINITIONS.--In this section--
4 (1) the term ''covered entity'' means--
5 (A) an insured depository institution, an
6 affiliate of an insured depository institution, a
7 bank holding company, a financial holding com8
pany, or a subsidiary of a bank holding com9
pany or a financial holding company, as those
10 terms are defined in the Bank Holding Com11
pany Act of 1956 (12 U.S.C. 1841 et seq.); and
12 (B) any other entity, as the Comptroller
13 General of the United States may determine;
14 and
15 (2) the term ''proprietary trading'' means the
16 act of a covered entity investing as a principal in se
17curities, commodities, derivatives, hedge funds, pri
18vate equity firms, or such other financial products or
19 entities as the Comptroller General may determine.
20 (b) STUDY.--
21 (1) IN GENERAL.--The Comptroller General of
22 the United States shall conduct a study regarding
23 the risks and conflicts associated with proprietary
24 trading by and within covered entities, including an
25 evaluation of--
1 (A) whether proprietary trading presents a
2 material systemic risk to the stability of the
3 United States financial system, and if so, the
4 costs and benefits of options for mitigating such
5 systemic risk;
6 (B) whether proprietary trading presents
7 material risks to the safety and soundness of
8 the covered entities that engage in such activi9
ties, and if so, the costs and benefits of options
10 for mitigating such risks;
11 (C) whether proprietary trading present
12 material conflicts of interest between covered
13 entities that engage in proprietary trading and
14 the clients of the institutions who use the firm
15 to execute trades or who rely on the firm to
16 manage assets, and if so, the costs and benefits
17 of options for mitigating such conflicts of inter18
19 (D) whether adequate disclosure regarding
20 the risks and conflicts of proprietary trading is
21 provided to the depositors, trading and asset
22 management clients, and investors of covered
23 entities that engage in proprietary trading, and
24 if not, the costs and benefits of options for the
25 improvement of such disclosure; and
1 (E) whether the banking, securities, and
2 commodities regulators of institutions that en3
gage in proprietary trading have in place ade4
quate systems and controls to monitor and con5
tain any risks and conflicts of interest related
6 to proprietary trading, and if not, the costs and
7 benefits of options for the improvement of such
8 systems and controls.
9 (2) CONSIDERATIONS.--In carrying out the
10 study required under paragraph (1), the Comptroller
11 General shall consider--
12 (A) current practice relating to proprietary
13 trading;
14 (B) the advisability of a complete ban on
15 proprietary trading;
16 (C) limitations on the scope of activities
17 that covered entities may engage in with respect
18 to proprietary trading;
19 (D) the advisability of additional capital
20 requirements for covered entities that engage in
21 proprietary trading;
22 (E) enhanced restrictions on transactions
23 between affiliates related to proprietary trading;
24 (F) enhanced accounting disclosures relat25
ing to proprietary trading;
1 (G) enhanced public disclosure relating to
2 proprietary trading; and
3 (H) any other options the Comptroller
4 General deems appropriate.
5 (c) REPORT TO CONGRESS.--Not later than 15
6 months after the date of enactment of this Act, the Comp7
troller General shall submit a report to Congress
on the
8 results of the study conducted under subsection (b).

No BBs will be "decimated" or "broken up". Prop trading desks are here to stay. In 15 months, the Volcker Rule won't be at the top of anyone's agenda, especially since the GOP will have much stronger representation. All this hyperventilation about the end of trading is downright stupid.

Comments (4)

Jun 6, 2010

You were right. After Repub. Sen. Shelby + Brownback covertly blocked the volcker-esque amendments to the financial reform bill nobody is trying anymore. Meanwhile we continue to hear press about how "sweeping financial requlation" has passed in the past month and how wall street bank's have repaid bailout funds with interest- now enabling them to produce the amazing profit numbers we have seen through their sheer genius expertise.

Oh my fucking god. It is still great to be elite in America. Though increased 250 basis points in Feb, the discount window rate is still only ~500 bps above the fed funds rate (and actually there are different rates charged to different institutions, it still approaches 0% in some instances). And still no audit of the Fed to see how much this is being taken advantage of. And the press still has quotes about how "auditing the fed would weaken banks reptuation blah blah".

I know this is a simplication- but the idea holds true: Imagine how much easy money can be made at ANONYMOUS borrowing at 0.5-0.75% where where you can use a pile of your own feces as collateral. People were amazed at how agg. trading activity at GS, MS, JPM, etc made a profit every day of Q1. The only amazing (ok actually impossible) thing would be if they didn't.

Jun 7, 2010

Huh? From everyone I've talked to, including a guy at a BB who has testified before the Senate regarding financial regulations, the Volcker Rule will pass. It's just a matter of how extensive it's going to be and how the SEC will interpret the ban on proprietary trading.

Jun 7, 2010

This is why Obama is actually a gift to the right... the guy is the master of "Doing nothing but saying we did". Look at healthcare. Look at financial reform. (btw I don't intend to be biased here at all). If you take a look at the 1.5 years he has been in office, the man has not really done anything substantial, but has claimed that he has.

Will healthcare meet its stated goals? No
Will financial reform? No

He has mastered the art of "Do nothing but say we did".

Jun 7, 2010