Volcker Rule Test Imminent

With the final version of the Volcker Rule due out on Tuesday, the focus is on whether it will be tough enough.

Bloomberg View: Although “Volcker’s simple concept has prevailed … in other areas, the regulators have compromised. The rule probably won’t stop banks from designating some proprietary trades as ‘market-making’.”

“Perhaps the best gauge will be how much trading migrates from the largest firms to independent brokerages, hedge funds and other institutions that have been squeezed out of the business … The Volcker rule, along with higher capital requirements, will minimize … subsidies [for big banks], which should make trading less profitable for banks and create opportunities for nonbank rivals.”

The Washington Post outlines areas to pay attention to:

  • Portfolio hedging. Early leaks suggest that portfolio hedging won’t be allowed under the final version of reform.
  • Market-making. Keep an eye on which agency will actually enforce these rules for which part of the bank, and how the agencies will coordinate that.
  • Implementation. The rule will point to actual concrete things we can look at in six months to see if the rule is having an effect [and] we should expect to see the people focused on [market making and client services] thrive.
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