Jun 29, 2010
It was billed by Barack Obama as the toughest crackdown on Wall
Street since the great depression. But top US banks could be given until
2022 to comply with the so-called Volcker rule, which is supposed to
restrict financial institutions' riskier trading activities.
A
string of delays and extension periods written into a final version of
Congress's financial regulation reform bill means that firms such as
Citigroup and Goldman Sachs could exploit loopholes until 2022 before
withdrawing from "illiquid" funds such as private equity. The long
gestation period is an example of the degree of compromise inserted into
the package following months of lobbying on Capitol Hill by powerful
banks.
"You can't just say 'stop', you can't just say 'unwind,'"
said Lawrence Kaplan, a lawyer at Paul, Hastings, Janofsky & Walker
in Washington, who said the delay was a dose of political reality.
"These things have contracts and detailed legal frameworks. You can't
undo them without doing considerable harm."
The Volcker rule,
championed by formed Federal Reserve boss Paul Volcker, stops banks from
engaging in "proprietary trading" whereby they trade with their own
capital, rather than clients' money. It also severely restricts their
investments in high-risk hedge funds and private equity ventures.
Language
in the act, according to Bloomberg News, allows for a six-month study
and a further nine months of rule-making. The measure is supposed to
become effective 12 months after the final rule is laid, then banks have
two years to conform. But if they need to, they can apply for a
three-year extension. On top of that, a five-year moratorium is
available for "illiquid" funds that are hard to unwind.
Complicated
caveats in the bill are subject to interpretation. A spokesman for Jeff
Merkley, a Democrat who proposed various changes to the rule, told
Bloomberg that the maximum delay was supposed to be nine years.
Other
measures in Obama's reforms include the creation of a consumer
protection agency, the introduction of a vote by shareholders' on
boardroom pay and new powers for authorities to seize troubled financial
institutions.
For Wall Street, the Volcker rule and curbs on
derivatives trading are the most contentious changes. In a research
note, analyst Jason Goldberg of Barclays Capital said JP Morgan, Bank of
America and Citigroup would be most affected by a ban on proprietary
trading. Taken together with the rest of the regulatory reform bill,
Goldberg estimated that Obama's crackdown could cut earnings at 26
leading banks by 14% in 2013, eliminating nearly $18bn of profit.
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It was billed by Barack Obama as the toughest crackdown on Wall
Street since the great depression. But top US banks could be given until
2022 to comply with the so-called Volcker rule, which is supposed to
restrict financial institutions' riskier trading activities.
A
string of delays and extension periods written into a final version of
Congress's financial regulation reform bill means that firms such as
Citigroup and Goldman Sachs could exploit loopholes until 2022 before
withdrawing from "illiquid" funds such as private equity. The long
gestation period is an example of the degree of compromise inserted into
the package following months of lobbying on Capitol Hill by powerful
banks.
"You can't just say 'stop', you can't just say 'unwind,'"
said Lawrence Kaplan, a lawyer at Paul, Hastings, Janofsky & Walker
in Washington, who said the delay was a dose of political reality.
"These things have contracts and detailed legal frameworks. You can't
undo them without doing considerable harm."
The Volcker rule,
championed by formed Federal Reserve boss Paul Volcker, stops banks from
engaging in "proprietary trading" whereby they trade with their own
capital, rather than clients' money. It also severely restricts their
investments in high-risk hedge funds and private equity ventures.
Language
in the act, according to Bloomberg News, allows for a six-month study
and a further nine months of rule-making. The measure is supposed to
become effective 12 months after the final rule is laid, then banks have
two years to conform. But if they need to, they can apply for a
three-year extension. On top of that, a five-year moratorium is
available for "illiquid" funds that are hard to unwind.
Complicated
caveats in the bill are subject to interpretation. A spokesman for Jeff
Merkley, a Democrat who proposed various changes to the rule, told
Bloomberg that the maximum delay was supposed to be nine years.
Other
measures in Obama's reforms include the creation of a consumer
protection agency, the introduction of a vote by shareholders' on
boardroom pay and new powers for authorities to seize troubled financial
institutions.
For Wall Street, the Volcker rule and curbs on
derivatives trading are the most contentious changes. In a research
note, analyst Jason Goldberg of Barclays Capital said JP Morgan, Bank of
America and Citigroup would be most affected by a ban on proprietary
trading. Taken together with the rest of the regulatory reform bill,
Goldberg estimated that Obama's crackdown could cut earnings at 26
leading banks by 14% in 2013, eliminating nearly $18bn of profit.
It was billed by Barack Obama as the toughest crackdown on Wall
Street since the great depression. But top US banks could be given until
2022 to comply with the so-called Volcker rule, which is supposed to
restrict financial institutions' riskier trading activities.
A
string of delays and extension periods written into a final version of
Congress's financial regulation reform bill means that firms such as
Citigroup and Goldman Sachs could exploit loopholes until 2022 before
withdrawing from "illiquid" funds such as private equity. The long
gestation period is an example of the degree of compromise inserted into
the package following months of lobbying on Capitol Hill by powerful
banks.
"You can't just say 'stop', you can't just say 'unwind,'"
said Lawrence Kaplan, a lawyer at Paul, Hastings, Janofsky & Walker
in Washington, who said the delay was a dose of political reality.
"These things have contracts and detailed legal frameworks. You can't
undo them without doing considerable harm."
The Volcker rule,
championed by formed Federal Reserve boss Paul Volcker, stops banks from
engaging in "proprietary trading" whereby they trade with their own
capital, rather than clients' money. It also severely restricts their
investments in high-risk hedge funds and private equity ventures.
Language
in the act, according to Bloomberg News, allows for a six-month study
and a further nine months of rule-making. The measure is supposed to
become effective 12 months after the final rule is laid, then banks have
two years to conform. But if they need to, they can apply for a
three-year extension. On top of that, a five-year moratorium is
available for "illiquid" funds that are hard to unwind.
Complicated
caveats in the bill are subject to interpretation. A spokesman for Jeff
Merkley, a Democrat who proposed various changes to the rule, told
Bloomberg that the maximum delay was supposed to be nine years.
Other
measures in Obama's reforms include the creation of a consumer
protection agency, the introduction of a vote by shareholders' on
boardroom pay and new powers for authorities to seize troubled financial
institutions.
For Wall Street, the Volcker rule and curbs on
derivatives trading are the most contentious changes. In a research
note, analyst Jason Goldberg of Barclays Capital said JP Morgan, Bank of
America and Citigroup would be most affected by a ban on proprietary
trading. Taken together with the rest of the regulatory reform bill,
Goldberg estimated that Obama's crackdown could cut earnings at 26
leading banks by 14% in 2013, eliminating nearly $18bn of profit.
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