If you were wondering why the Big Banks were fighting so hard against The Volcker Rule over the past 5 years you are about to find out. As of Tuesday, April 1, 2014, the rule goes into effect.
OCC: Volcker Rule: Final Regulations
Highlights The final regulations
• Prohibit banks from engaging in short-term proprietary trading of certain securities, derivatives commodity futures, and options on these instruments for their own accounts.
• Impose limits on banks’ investments in, and other relationships with, hedge funds and private equity funds.
• Provide exemptions for certain activities, including market making-related activities, underwriting, risk-mitigating hedging, trading in government obligations, insurance company activities, and organizing and offering hedge funds and private equity funds.
• Clarify that certain activities are not prohibited, including acting as agent, broker, or custodian.
• Scale compliance requirements based on the size of the bank and the scope of the activities. Larger banks are required to establish detailed compliance programs and their chief executive officers must attest to the OCC that the bank’s programs are reasonably designed to achieve compliance with the final regulations. Smaller banks engaged in modest activities are subject to a simplified compliance program.
*Note: The banks don’t have to be fully compliant until July 2015 so expect a wild shakeout between now and then as they try to rid themselves of TRILLIONS of DOLLARS worth of non-compliant derivatives. It won’t take that long as big banks have a tendency to EAT THEIR OWN when it comes to their own survival!
Note: 25,26 July 2015 is the 9th of Av
So what do all these restriction do?
. . . history has shown that you can’t have an unbacked fiat monetary system without controlling the prices of some key commodities and monetary instruments. Gold, silver, oil and the USD are the main ones. That’s where market rigging with computers and derivatives came into play in the 1970′s. That is why the top 5 banks (JPM, Citi, BofA, Goldman & Morgan Stanley) hold over $295 TRILLION in derivatives! It is the ONLY reason that the unbacked system is still viable. This unbacked system has lasted over 40 years after breaking all ties with gold…an unprecedented record in monetary history and only made possible by the computer market rigging programs written in the 1960′s by Alan Greenspan.
- – Bix Weir
First, the Volcker Rule will have a negative effect on market making and liquidity provision for many securities. The Volcker Rule will induce banks to retrench more from market making in smaller and riskier securities where large and unexpected supply-demand shocks are more likely, thereby reducing market making in the very securities where it is most valuable. The securities issuers and the investors will feel the effects. There will also be other adverse consequences for bank customers. They will experience a lowered value of financial services provided by banks, less liquidity for the securities that banks issue, and more distorted prices of bank securities that remain distorted for longer than before. Moreover, bank customers are also likely to be forced to record mark-to market losses on the securities that they hold.
Second, the Volcker Rule will reduce the network benefits of market making for financial institutions and businesses. Market makers in securities operate in networks, and the retrenchment of banks in market making will reduce the
value of the network even if unregulated (non-bank) entities move in to fill the vacuum created by the exit of banks. This will eventually hurt bank customers.
Third, the Volcker Rule is likely to lead to higher costs of capital for businesses and potentially lower capital investments by these borrowers, along with a possibly greater focus on riskier or more short-termoriented
investments. Due to reduced liquidity and greater perceived regulatory uncertainty, borrowers will be confronted with higher costs of capital. This is likely to reduce aggregate investment and also make riskier investments more attractive. Moreover, firms will find it more attractive to invest in projects that pay off faster. The reduction in
aggregate capital investment may also cause significant job losses.
The need to restrict proprietary trading is not only, or perhaps most importantly, a matter of the immediate market risks involved. It is the seemingly inevitable implication for the culture of the commercial banking institutions involved, manifested in the huge incentives to take risk inherent in the compensation practices for the traders. Can one group of employees be so richly rewarded, the traders, for essentially speculative, impersonal, short-term trading activities while professional commercial bankers providing essential commercial banking services to customers, and properly imbued with fiduciary values, be confined to a much more modest structure of compensation?
Wall Streeter’s Lament Volcker Rule: “Liquidity Is About To Be Sacrificed At The Altar Of Ignorance & Fear”
Today’s news that a 58 year old NEWLY RETIRED Deutsche Bank CEO is dead is just another Symptom of the destruction going on behind the scenes in the European Derivative Market.
“William Broeksmit, a recently retired executive at Deutsche Bank AG (DBK) who worked at Merrill Lynch in the 1990s with Anshu Jain, now Deutsche Bank’s co-chief executive officer, has died. He was 58.”
“He died on Jan. 26 at his home in London, according to a memo to employees obtained by Bloomberg News. Deutsche Bank spokesman Michael Golden confirmed the contents, which didn’t give a cause. In an interview, a spokesman for the London police said a 58-year-old man was found hanging in a residence on Evelyn Gardens, the street where Broeksmit lived, and thatauthorities aren’t treating the death as suspicious.”
“Broeksmit “was a pioneer in interest rate swaps” while at Continental Bank in Chicago “and brought his expertise to Merrill Lynch,” Janet Tavakoli, who managed asset swaps under Broeksmit at Merrill in the late 1980s, said today in an interview. “He was brilliant.” Tavakoli is president of Tavakoli Structured Finance Inc. in Chicago.”