As President Obama announced the Volcker Rules last week, thousands of bank/hedge/equity linked individuals spit their coffee across office suites and began gagging. The V Rule or rules are two fold. One. If you are an institution that take federally insured deposits, you cannot speculate. Two. You will be limited to the amount of risk you can take and you will not be able to own, advise, or invest in hedge funds or private equity.
If you take deposits and cannot speculate, and you can speculate but cannot take deposits, how will these poor institutions survive?
Well the first V Rule can be taken care of simply giving up the Fed window deal. The second rule however is a bit trickier when trying to figure out how to get proprietary trading into the bottom line. Goldman and JP Morgan can go back to being strictly investment institutions but will have to scale back their business models that had recently included deposit nirvana. Growth will be a problem and growth by exponential dimensions has allowed them the ability to intertwine transactional volume together with speculative venues. Trading services is a wonderful thing since charging, not really trading is the game.
Volcker will testify on Tuesday in front of the Senate Banking Committee and then will be followed by Goldman and JPMorgan of Thursday as they try to modify the Volcker Rule with the Weasel Adjustments.
