Dec. 10 - The final version of the controversial Volcker rule appears to be tougher on so-called proprietary trading than it was first proposed 2 years ago, despite hopes of leeway from banks. Bobbi Rebell reports.
The Volcker rule will become not only a reality- but a tougher reality than many banks had expected. U.S. regulators passed the modified rule- which cracks down on Wall Street's risky trades- one of the harshest reforms after the credit meltdown. Fed Chair nominee Janet Yellen said the rule struck the right balance. SOUNDBITE: JANET YELLEN, VICE CHAIRMAN, FEDERAL RESERVE (ENGLISH) SAYING: "I strongly support the goal of the rule which is to eliminate short term financial speculation in institutions that enjoy the protection and the safety net. But it's also important for the liquidity of financial markets and also for the safety and soundness of financial institutions that they be permitted to engage in market making and hedging." The Volcker rule- which is named after former Federal Reserve Chairman Paul Volcker- basically bans banks from proprietary trading, or speculative trading for their own profits- as well as hedge funds and private equity investments. The final rule also clarifies exceptions. Reuters BreakingViews columnist Antony Currie: SOUNDBITE: ANTONY CURRIE, REUTERS BREAKINGVIEWS COLUMNIST (ENGLISH) SAYING: "Banks are still allowed to prop trade within reason. U.S. government bonds, I think agency bonds as well and maybe even within some respects other governments bonds as well and that can make up a huge part of a fixed income trading business so it's not completely dead. It's just if you want to do these dodgy weird mortgage trades that were happening a few years ago you can't get involved in those." The hope is that it can prevent debacles like JP Morgan's $6 billion 2012 trading loss- that has been known as the London Whale- because of the huge positions the bank took in the credit markets. But there are concerns- FBR bank analyst Paul Miller: SOUNDBITE: PAUL MILLER, BANK ANALYST, FBR (ENGLISH) SAYING: "It's more restrictive- but how are they going to enforce it? Is it really going to have a major impact in the banks' earnings down the road- I don't think so. But the bottom line is that what we view it as, is the banks can't screw up that protection going forward." Miller says big banks like JP Morgan and Goldman Sachs could be among the hardest hit by the proprietary trading ban- and hedge funds could pick up the slack. SOUNDBITE: PAUL MILLER, BANK ANALYST, FBR (ENGLISH) SAYING: "You are seeing more and more of this stuff being pushed out of the banking industry and I think this is just another step where you are pushing some of these prop trades into the hedge funds outside of the banking world which is probably where it should be because you are not pushing depositors at risk but you have less control on that." Regulators also agreed to extend the deadline for compliance by a year to July of 2015.