When Wall Street doesn’t like something, one thing is certain: the public will hear about it.
The pushback on the Volcker rule, which would ban proprietary trading at deposit-taking financial institutions and limit bank size, has been fast, furious, voluminous, and, some accounts would have you believe, fatal.
A news service called dealReporter created buzz last night reporting (the story was incorrectly attributed elsewhere to the Financial Times, but an FT spokeswoman tells me the news service is only owned by the same group and not linked editorially) that the Volcker rule isn’t going to make it after all:
A proposal by former Federal Reserve Chairman Paul Volcker to limit bank’s proprietary trading will be either be dropped or significantly modified in the Senate, lawmakers and staffers told dealReporter. Senate Banking Committee ranking member Richard Shelby (R-AL) said he opposes the so-called Volcker rule and the Obama administration’s call to levy a USD 90bn tax on banks. His comments come as House Financial Services Committee Chairman Barney Frank (D-MA) predicted the proposals outlined by President Obama could be law within six months.
Whether that negative forecast pans out remains to be seen.
Meanwhile, the Times’s Andrew Ross Sorkin and the Journal weigh in with stories that report on the Street’s largely hostile response to Volcker’s proposed trading rule and relay arguments about the difficulty of separating proprietary trading from trading or making markets for clients.
A senior banker put it to me more bluntly: “I can find a way to say that virtually any trade we make is somehow related to serving one of our clients. They can go ahead and impose the rule on Friday, and I can assure you that by Monday, we’ll find a way around it. Nothing will change unless the definition is ironclad.”
Here is one example of how hard it can be to untangle proprietary trading from market-making: As a market maker, a bank buys from a customer $25 million of 10-year bonds issued by government-sponsored mortgage company Fannie Mae. To offset the risk of those bonds falling in value if interest rates rose, the bank might then sell $25 million of 10-year Treasurys. That sale could be considered a proprietary trade.
Got that? Good.
All this reporting is good. It shows plenty of sophistication about the technical problems in teasing out one kind of trade from another. The Volcker rule seems to make commonsense, but will it really help reduce systemic risk? Readers have plenty of information to make up their minds.
Reuters counters that it’s not as hard as all that:
U.S. prop trading ban? Tough, but not impossible
Naked Capitalism says the rule had too many loopholes anyway.
Wall Street’s concerns may indeed be legitimate, but what is striking is the megaphone it is provided to air them. The response among political figures in Washington to the media saturation is visible for all to see. Some industries (not to mention regular people) may have to suffer in silence. Wall Street is not one of them.Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.