For those of you wanting to keep tabs on the soon-to-be-final Volcker Rule, here are some important links. Here is the fact sheet (released today). Here is the board memo accompanying the final rule from yesterday. The full proposed rule as printed in the Federal Register.
In a nutshell, the rule will prohibit "banking entities" from engaging in "proprietary trading" and owning "covered entities." The meat, of course is in the definitions and exceptions. The term "banking entity" is going to basically cover any bank holding company or other insured depository institution operating in the U.S., including affiliates, subsidiaries, parent companies, etc. Nonbank financial companies are exempt from these prohibitions but may be subject to other capital requirements. Proprietary trading activites are prohibited, but market-making, risk-mitigating hedging, underwriting and trades necessary to provide liquidity are exempt. Certain investments in covered entities, hedge funds and private equity funds, are exempt. And the kicker -- executives have to certify that the bank has "taken steps" to comply with the rule, though they don't have to certify actual compliance.
So, will this take away the benefits of being a BHC for Goldman and Morgan Stanley? Maybe, though I read at least one commentator say that should these "too big to fail" entities opt out, regulators could just change the definition of "bank entity" to include "systemically important financial institutions" (SIFIs).
Hard to believe, but the Volcker Rule was proposed in 2011. Here is a great series of posts by friend of the Glom Kim Krawiec on the making of the Volcker Rule.
Finally, if you want a good read on the very profitable road from matching customer trades to proprietary trading, The Partnership: The Making of Goldman Sachs, is a very interesting read.
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