|by Tim Mullaney, USA TODAY|
Five years after the financial crisis, regulators will vote Tuesday on the "Volcker Rule,'' one of the most contested elements of the sweeping, post-crisis
The rule is expected to bar most trading by banks for their own accounts and profit — so-called "proprietary trading'' — in a bid to protect the financial system and federal deposit insurance from future 2008-like meltdowns. Banks would still be able to do such trading for clients.
The Federal Reserve,
The Volcker rule has been fought by business interests, who now believe they are likely to lose on many key details. Among them: a bar on buying and selling investments for the bank's own account even when they are used to hedge positions the institutions are allowed to hold, said
The rule is also expected to give banks the burden of proving that any securities they do own are in their portfolios for the few remaining permitted purposes, rather than making regulators prove that the banks intend to break the rules, he said.
Regulators' tough stance heralds a new era and new approach for financial markets,
"The big picture is that this ushers in an era of Big Brother banking,'' with regulators closely monitoring details of top banks' risk-taking, Mayo said. "Big Brother was asleep on the couch before the financial crisis.''
The new policy reflects
Banks have already curtailed most of their proprietary trading, Mayo said, understanding that new rules are coming. That may limit the financial impact from the rules, though so much remains unknown that the effect is still uncertain, he said.
"I've done this 60-80 hours a week for 25 years, and even I have trouble getting my head around where proprietary trading begins and ends,'' said Mayo.
The biggest arguments recently have been about how much trading should be allowed to hedge positions, especially since banks typically have more deposits on hand than they have loans outstanding, with the rest of their assets usually invested in the markets. They also typically own securities as part of legal activities such as executing client trades and making markets, he said.
Liberal-leaning groups like Better Markets have lobbied for the toughest version of the rule possible, arguing in a
“Wall Street and its lawyers are in the loophole creation and exploitation business,'' Better Markets'
Conservative-learning groups like the U;.S.
Top banks will spend millions of dollars complying with the rules, Cimino said.
“We expect to see outlays for both information technology and staff,'' he said. “But it's going to be difficult [to say how much] until we see the final rule.''
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