You could, if you wanted to, divide the world into people who find parsing through the Volcker Rule draft creepily fascinating, and people who would rather not, thanks for offering. The first category, as far as I can tell, consists of (1) me, in small doses, and (2) a PowerPoint-enabled band of lawyers at Davis Polk, who helpfully put together an insane flowchart of the Volcker Rule. The latter category is everyone else.
So if you were, say, David Viniar, and you clicked on Davis Polk’s flowchart and noticed that it had nineteen slides many of which look like this:
… you might say “fuck it, there has to be an easier way.” Fortunately, there is, and it’s right there on Step 1: if you’re not an insured depositary institution (or bank holding company or affiliate), you’re not subject to the rules and you can go merrily on your prop trading way.
True? Somebody thinks so:
Goldman Sachs Group Inc. (GS) and Morgan Stanley may consider dropping their status as bank holding companies to avoid expenses tied to the Volcker rule, said David Hilder, an analyst at Susquehanna Financial Group LLP. …
“The regulators have proposed a massive new compliance burden on banks to prove that their market-making activities are just that, and not proprietary trading in disguise,” wrote Hilder, who’s based in New York. “If these regulations are adopted in anything close to their proposed form, there will be large additional costs imposed on banks as market-makers that will not apply to market-makers not owned by banks.”
Others are skeptical:
“If they tried to do that, Congress would amend the rule to say systemically important banks rather than bank holding companies,” [KBW analyst David] Konrad said in a phone interview. “This is part protecting deposits, but also part too-big-to-fail. I don’t think there’s any interest from the investment banks in doing that, and I don’t think it would serve that purpose.”
Other arguments against letting GS and MS escape Volcker’s clutches include the fact that big broker-dealers are generally viewed as getting shadow support from the government, and also, people just kind of hate the shit out of Goldman and don’t want anything good to happen to them ever. (Morgan Stanley could be good to go.)
And Congress probably wouldn’t even have to amend the rule. Dodd-Frank’s “Hotel California” provision provides that a big bank that gives up its bank status automatically remains a “systemically important nonbank,” subject to similar regulation that is largely left to the discretion of the regulators. The Volcker Rule doesn’t currently seem to apply to systemically important nonbanks, but you can bet that it would if GS and MS tried to wriggle out.
That said, if you think, as I am inclined to, that market making in financial assets serves some useful social purpose and will continue to attract clients and money, then someone will provide it. Hilder at Susquehanna is probably right that the costs imposed on bank market-makers will be huge, and he’s probably wrong that Goldman and Morgan Stanley can easily opt out of those costs just by dropping BHC status. Which could leave an attractive opening for the nonbank market makers of the world, whether in the form of Jefferies, or Citadel, or a merry brotherhood of robots. Or Susquehanna.
Goldman May Drop Bank Status Over Volcker Rule, Hilder Says [Bloomberg]
Matt please put this article about flowcharts into chart form. Thanks
tx.
What's the opposite of, "This article is EXACTLY the right length?"
This article is 1/EXACTLY the right length?
- AIG Quant
"htgnel thgir eht YLTCAXE si elcitra sihT"?
- UBS Quant
Nice. So when the $hit hits the fan, they game the system, become backstopped by the government to the tunes of trillions of dollars (http://money.cnn.com/2010/12/01/news/economy/fed_reserve_data_release/index.htm) and when they are asked to play by the government's rules they just get to bail? And people wonder why there are hoards gathering outside their offices.
I say fine, they can stop being bank holding companies, but only if JPM, C, BAC, etc. all spin off or shut down their IB/"market making" arms. If they don't, they too can no longer bank holding companies. Depositors are no longer FDIC insured. The firms no longer have access to the Fed window.
Heads on sticks RULE!!!
It's (-1)/EXACTLY
-LEH Editor Quant
Sorry, I missed that, I was taking a $hit. Come again?
- L Blankfein
Wow, I just realized that "This" and "Shit" have the same letters. Thanks, UBS Quant!
Where are these OWS people coming from? Leave us alone.
Sure thing! That's what they (don't) pay me for!
- UBS Quant
Well played. Slow day today?
Why would JPM C BAC have to do that just because MS GS are? If all of your friends jumped off a bridge would you?
IMO congress should go eat a bowl of hot dicks and find another scapegoat to divert attention from their own corrupt practices.
JFC, stop complaining about W.A.S.T.E, you've been doing it for 5 decades already. Give it a rest.
What hordes gathering outside? Only bank they're near in NYC is Brown Brothers Harriman & Co.– and protesting them only makes sense if you go through a timewarp to 1946.
Mirrors on the ceiling with pink champagne on ice
I think this should apply to everyone at home trading their E-Trade account. We wouldn't want the American public exposed to such dangerous risks. Before you go 100 long MSFT you must speak to your attorney, have your compliance team do an in-depth analysis, and finally have your risk dept sign off on it.
I sense opportunity in the air.
- Jeffries junior rainmaker
Hey!
-B. Frank
I usually say "fuck it" and find someone else to do it.
You are all broke, enjoy your demise.
I always thought that GS, at minimum, would dance through some contortion and weave its way back into non-bank status. Maybe go private, then convert or something.
He said there are hoards, as in treasure hoards. They are making so much money it is spilling out of their offices.
Goyim Sacks ?
David Konrad sounds like he has years of experience in DC political circles. I would definitely tell my employer to absorb billions in regulatory expenses based on his clairvoyant knowledge of what Congress will do to conform regulations to his preferred outcome.
2008 :Broke because too much party till the music played?
Become a bank holding get free money from the government http://www.marketwatch.com/story/goldman-sachs-mo…
2011: drop da bank holding to party like 2006
XEvPmM Thanks so much for the blog.Really thank you!