Whoever thought Paul Volcker’s influence is slipping, better think again.
According to the FT, banking lobbyist sources think it is increasingly likely that the proposed “Volcker Rule”, designed to restricts banks that receive taxpayer protection from engaging in speculative investments such as proprietary trading, will be approved despite lobbying efforts by the big investment banks to kill it.
FT: The banks’ argument [is that] the attempt to lessen risk will perversely increase it by preventing deposit-taking banks from mitigating their risk and by driving activities into the less-regulated shadow banking sector of pure investment banks, hedge funds and private equity firms.
Some of the more astute lobbyists have realised that arguments about competitiveness and risk just do not cut it in the current febrile atmosphere.”
As the FT notes, “the political mood is such that a straight vote on derivatives would be close [Lincoln Blanche, the Democratic senator from Arkansas, has proposed a provision, which is opposed by Volcker and the White House, that would force banks to spin off their swaps desks] and the Volcker Rule would be likely to pass.” [emphasis added]
Should the Volcker Rule pass and get implemented, this will have profound implications for a number of major banks including Goldman Sachs (GS) which might be forced to give up its banking licence, in order to continue trading for its own account on the scale it has been doing.