Volcker vote ushers in new world order for banks

Rule bans banks from making bets using their own accounts

Janet Yellen, vice chairman of the US Federal Reserve and Ben  Bernanke, chairman, at meeting of the Board of Governors of the Federal Reserve in Washington DC. Wall Street faces increased government oversight of trading after the passing of the Volcker rule. Photograph: Andrew Harrer/Bloomberg

Janet Yellen, vice chairman of the US Federal Reserve and Ben Bernanke, chairman, at meeting of the Board of Governors of the Federal Reserve in Washington DC. Wall Street faces increased government oversight of trading after the passing of the Volcker rule. Photograph: Andrew Harrer/Bloomberg

 

The largest US banks were facing a new world order as regulators voted through the Volcker rule, which will make it harder for Wall Street to make risky gambles that could once again endanger the financial system.

The rule dramatically curbs the way banks do business, banning them from making bets using their own accounts in what is known as proprietary trading, and also holding their chief executives more accountable. But it gives regulators a lot of room for interpretation.

As a result, the way agencies implement the rule will be key in determining whether it can really prevent another incident such as the $6 billion-plus “London Whale” derivatives trading loss JPMorgan suffered in 2012.

Some Wall Street law firms breathed a sigh of relief after seeing the concessions in the final terms. “We think this is killing a fly with a hammer but we’re not going to relitigate that point now,” said one senior bank executive. “It’s clear that the technicians at the regulators made a sincere effort to improve it.”

The long-awaited rule is named after former Federal Reserve chairman Paul Volcker, who wanted to prohibit banks from making speculative bets that he said helped cause the financial crisis in 2008.

Banks face the difficult task of grappling with what Volcker means for them and what businesses they will have to curb or eliminate to comply. – (The Financial Times Limited 2013)