WASHINGTON (Reuters) - A proposal to simplify a rule banning banks from proprietary trading, rather than making life easier for Wall Street, could ensnare billions of dollars’ worth of assets not currently caught by the regulation.
This little-noticed wrinkle, if it were to make it into the final rule, could prompt Wall Street firms to overhaul their treasury, trading and merchant banking operations and change their accounting practices, lawyers and executives told Reuters.
On May 30, U.S. regulators unveiled a plan to modify the so-called Volcker Rule introduced following the 2007-2009 financial crisis, aiming to make compliance easier for many firms and relieving small banks altogether.
Wall Street has long complained about the complexity and subjectivity of the rule, which bans banks that accept U.S. taxpayer-insured deposits - such as Goldman Sachs Group Inc(GS.N), JPMorgan Chase & Co (JPM.N) and Morgan Stanley (MS.N) - from engaging in short-term speculative trading.
Republicans, the business lobby and analysts initially welcomed the proposal as a long overdue move to streamline and clarify the rule, while consumer advocates and progressive Democrats criticized it as a risky Wall Street giveaway.
But after digesting the 494-page consultation, financial industry executives and lawyers said it could actually create new headaches for big banks by banning a swath of trades and long-term investments not currently covered by the rule.
“It’s going to capture trades that wouldn’t be captured by the current regulation and that’s the bogeyman people would want to avoid in this proposal,” said Jacques Schillaci, a banking lawyer at Linklaters LLP who has studied the proposal.
The draft is
