Barney Frank just delivered a speech at Compliance Week’s annual conference in Washington D.C. and he seems to have confirmed what Goldman Sachs analysts told us yesterday - new legislation that forces banks to spin-off their derivatives business probably won't make it into the final financial reform bill.
"Banks ought to be able to hedge their own risks," Mr. Frank said. He said banks would be prohibited from overly risky derivatives activities by the Volcker Rule and that the separate provision wouldn't be necessary.
"I don't see the need for a separate rule regarding derivatives because the restriction on banks engaging in proprietary activities would apply to derivatives as well as everything else," Mr. Frank said.
That’s not going to sit well with Barney’s Democratic colleague, Blanche Lincoln of Arkansas, who has been fighting tooth and nail for the new legislation. Goldman’s analysts warned yesterday that the legislation would do some serious damage to the banks if it passed, but they don’t think it will get through.
From Goldman's Report:
...while regulatory risk is (hopefully) reaching a peak it does create the specter of an overhang for some time. In particular our Washington analyst does not expect the Lincoln proposal to make it into the final version of the bill, but should this occur it would be very negative for investment banks and potentially exchanges as volumes would suffer.