For months, large banks have been attempting to dial back the Volcker Rule, which was included in the Dodd-Frank Act and bans proprietary trading, arguing that regulators’ first proposal to implement it was unworkable.
And until Friday, many in the industry had thought they were making headway against the proposal, which even supporters agreed was overly complex.
But in the wake of JPMorgan Chase’s 2 billion dollar loss on its trading activities, it might be more likely that the plan will be dialed up, not down.
Although JPMorgan insisted its trades in London were legitimate hedging activities — which would be allowed under the Volcker Rule once it goes into effect in two years — that argument may only hurt the industry’s position.
If policymakers believe the trades would not have been prevented under the enactment of the Volcker Rule, then they just might push for steps to toughen the ban, versus weakening it. Clearly, a lot of the gain against the proposal has now been erased, and support for it will most probably rise. Read a detailed analysis from the industry.