The Volker Rule Has Been Finalized

AFter 3 years, and interminable lobbying by finance industry, the Volker rule restrict proprietary trading by banks has been finalized :

Government regulators ushered in a new era of oversight Tuesday aimed at reining in Wall Street risk-taking, voting to prevent big banks from trading for their own benefit.

The “Volcker rule,” named after former Federal Reserve chairman Paul Volcker, also bars banks from owning hedge funds and private-equity funds. The centerpiece of the 2010 Dodd-Frank financial overhaul law took three years to complete as government infighting and intense lobbying by banks slowed the process.

“Our financial system will be safer and the American people are more secure because we fought to include this protection in the law,” President Obama said in a statement.

Lawmakers devised the measure to prevent banks with government backstops such as deposit insurance from making risky trades for their own benefit, arguing that the bets could endanger taxpayers. The challenge for regulators has been restricting such proprietary trading without impeding acceptable practices, such as firms trading on behalf of clients as market-makers or hedging their risk against fluctuations in interest rates.

But banking industry officials continued to warn that the rule goes too far. “Many bankers will struggle to understand complex provisions that have no application to their business model and are open to conflicting interpretations,” Frank Keating, president of the American Bankers Association, said in a statement.

On Tuesday, the Federal Deposit Insurance Corp. board and the Federal Reserve unanimously approved the final version of the rule. The Securities and Exchange Commission voted 3 to 2 in favor, while the Commodity Futures Trading Commission adopted it in a 3 to 1 vote.

Supervision will ultimately be the responsibility of the Office of the Comptroller of the Currency, the CFTC and the SEC.

That last line is profoundly worrying, since with three agency being responsible for enforcing this, none of them will be held accountable.

And then there is the fact that, "The 71-page rule, a streamlined version of the 298-page draft, addresses many concerns about which activities and investments are allowed, but gives regulators flexibility to interpret the rules."

The article wrings it's hands about how the banksters have to spin off their prop trading desks, but as Dean Baker observes, that was the point of this whole endeavor:

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.

Even then, I do not think that it's going to work.