Skip to comments.A Hedge or a Bet? Trade Highlights Ambiguity in Volcker Rule(Dodd-Frank)
Posted on 05/12/2012 7:02:16 AM PDT by Son House
Regulators have a July deadline to finish the rule, but officials have said it appears unlikely they will meet it.
The October draft rule issued by the Fed, the Securities and Exchange Commission and other regulators permits what is known as "portfolio hedging," or buying and selling in order to reduce the risk of a portfolio of securities held at the bank.
Messrs. Merkley and Levin say regulators inserted a "loophole" into the rule's draft.
The Dodd-Frank law says banks can conduct hedging activities related to "individual or aggregated positions."
It is unclear whether that includes buying or selling to hedge against an economic downturn or another broad event that is difficult to match with individual security purchases.
"You would decrease bank safety and soundness materially if you didn't allow for macro hedging," said Eugene Ludwig, a former comptroller of the currency and now chief executive of financial-consulting firm Promontory Financial Group.
Some argue that the goal of regulation isn't to completely eliminate mistakes and losses from the financial system.
(Excerpt) Read more at online.wsj.com ...
I have issues with anybody who says that more government regulation is needed so as to prevent this.
Good, I was hoping someone would come along and could you elaborate more to get some of the rest of us up to speed?
Investopedia explains ‘Volcker Rule’
Named after former Federal Reserve Chairman Paul Volcker, the Volcker rule basically stops banks from doing their normal business (installment loans, residential mortgages, equity credit loans, deposit services) as well as trading on their own behalf.
Ping, I believe there is a good point to add;
“firms will eliminate individual traders from the risk management process, in favor of some model that is unspecified, but is suggested by the context to be a risk czar either human or machine that holds veto over any trade or position. This is an aggregated, top-down, if you will, socialistic, and flawed model.”
They lost money. That is what investment banks do - they make money sometimes and they lose money sometimes. Telling a bank they must try and eliminate trading losses is like telling a plumber he can do his job as long as he doesn’t touch any pipes or toilets.
Thanks, that’s why the Democrats and media are in such an uproar, they are portraying what may be a short-term loss as a complete loss scare to pass more big government, and using regulators so there never has to be a vote.