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Home Publications Blogs Beat the Press Getting Banks to Spin Off Trading Desks Was the Point of the Volcker Rule

Getting Banks to Spin Off Trading Desks Was the Point of the Volcker Rule

Tuesday, 10 December 2013 06:24

The Washington Post had a useful piece on the Treasury Department's adoption of a stronger than expected version of the Volcker Rule, which is likely to seriously limit the extent of proprietary trading at the major banks. At one point the piece tells readers;

"In anticipation of the Volcker rule, many large banks, including JPMorgan, have shuttered or spun off their proprietary trading desks, as well as their private-
equity arms and hedge funds. That could blunt the full force of the rule, analysts say."

It's not clear what this could mean, since the point of the Volcker Rule was to keep banks from engaging in proprietary trading. If they have spun off their trading desks then its purpose will have been accomplished. The goal is not to prevent trading, but to prevent banks from effectively speculating with government guaranteed deposits.

Comments (4)Add Comment
We'll see how well it works out
written by ifthethunderdontgetya™³²®©, December 10, 2013 10:49
Point being, if the law wasn't enforced when the speed limit was 40, does lowering the speed limit to 30 really mean anything?
blunt force
written by Squeezed Turnip, December 10, 2013 10:53
The WaPo has to compete with The Onion. Therefore it makes such comedic remarks as
hat could blunt the full force of the rule, analysts say.

The fact they closed their trading desks actually shows the rule is working as intended, as Dean points out. Yellow journalism is back in fashion apparently.
who says
written by djb, December 10, 2013 12:13
analysts say

is that kind of like "people say"

"thats what they say"

Who are the regulators?
written by Gaylord, December 11, 2013 12:03
Given the lousy record of the SEC regulators who ignored numerous warnings prior to the crash of '08, I would like to know more about these bank regulators -- who appointed them, what is their track record, what is their funding source, what enforcement authority do they have, can they limit leveraging, etc.

Will international trading will be controlled to the extent that deals like London Whale will be prevented in the future, presuming that any loophole in the new Rule will be exploited? I guess nobody knows.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.