The Multibillion-Dollar Leak (Draft of 'Volcker Rule' Hits Internet) WSJ

[chill_wind]

The Multibillion-Dollar Leak
Draft of 'Volcker Rule' Hits Internet, Rocking Wall Street, Washington; 'Proprietary Trading' on Line
SCOTT PATTERSON And VICTORIA MCGRANE
OCTOBER 7, 2011

Bankers, lobbyists and lawmakers from Wall Street to Washington scrambled to dissect, analyze and react to a leaked proposal for one of the most controversial elements of the Dodd-Frank financial-overhaul law: the "Volcker rule."

Billions of dollars are at stake for big banks, which have been working for months to shape the rule aimed at curbing risky trading activities that played a part in the financial crisis.

The latest frenzy erupted late Wednesday when a website posted a 205-page draft of a memo, dated Sept. 30, that laid out critical elements of the proposed Volcker rule.

The leak left regulators fuming and opened a new front in Wall Street's battle to soften the blow of the proposed rule. The draft gave banking industry lobbyists several days to discuss it before Tuesday, when the Federal Deposit Insurance Corp. is scheduled to consider issuing a version for public comment.

more at
http://online.wsj.com/article/SB10001424052970204294504576615382298044922.html?mod=e2tw

See also ProPublica Sept 22

Regulators Weaken Dodd-Frank Draft Regs, Allow More Risk

by Marian Wang
Sep. 22, 2011


The regulatory agencies in charge of finalizing some of the most controversial rules mandated by the financial reform law are leaning toward making them looser and more favorable to banks and other traders, according to recent reports in the financial press.

As we noted in June, federal regulators were still puzzling over how restrictive the ban on proprietary trading—banks trading on their own behalf—should be, given that banks are still allowed to hedge against risks. The Office of the Comptroller of the Currency has argued for banks to be given more leeway in what types of trades would be permitted as hedges under the rule, but critics charge that banks could use the opportunity to take more risks rather than hedge against them.

more:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=439x2013901

[Oceansaway]

1. K&R...n/t

[chill_wind]

2. NYT & Bloomberg (more views)

Volcker Rule Could Leave Some Murky Wiggle Room
By ANTONY CURRIE and WAYNE ARNOLD
Published: October 9, 2011

http://www.nytimes.com/2011/10/10/business/volcker-rule-could-leave-some-murky-wiggle-room.html


Bloomberg:

Don’t Dump the Volcker Rule Just Because It Will Be Far From Perfect: View
By the Editors Oct 9, 2011 8:00 PM ET


(long intro snipped)

The Volcker rule will not -- and probably cannot -- fully dissolve the union of bankers and gamblers. The outline of the rule in the Dodd-Frank Act passed by Congress last year contains loopholes, such as one allowing banks to take on short- term trading risks as part of so-called market-making activities, in which they facilitate customers’ securities trades.

Judging from an early draft of the rule made public last week, regulators are looking at ways to narrow the exemptions and define proprietary trading as broadly as possible. One promising proposal would forbid banks from designing traders’ pay in ways that reward risk-taking. If such efforts prompt banks to view market making and the underwriting of companies’ stock and bond issues as too burdensome, that would be no great loss. Brokerage firms performed those functions successfully for decades before the 1999 repeal of the Glass-Steagall Act, which largely prevented commercial banks from entering the securities business.

No Guarantee

The rule also does nothing to address another problem: the teetering trading firm that is so interconnected and systemically important that the government will feel compelled to bail it out. Avoiding a repeat of the Lehman Brothers Holdings Inc. debacle is the role of other financial reforms, such as prudent capital requirements, centralized clearing of derivatives trades, and mechanisms that allow officials to take over and wind down financial institutions.

Even with all these drawbacks, the Volcker rule is worth doing. The greater the barriers become, the more likely gamblers will be to take their act elsewhere -- to hedge funds, for example. There’s absolutely nothing wrong with proprietary trading -- it just shouldn’t be done within the walls of federally insured, deposit-taking banks.

more:

http://www.bloomberg.com/news/2011-10-10/don-t-dump-the-volcker-rule-just-because-it-will-be-far-from-perfect-view.html