As you may just have heard the devil is in the details. Or, in the case of the latest push to reform Wall Street, the devil is in whether or not the details will actually be mandatory.
Bank lobbyists looking to weaken the Volcker Rule are targeting its language, Business Week reports.
The financial reform bill unveiled by Senate Banking Committee Chairman Christopher Dodd (D - Conn.) last week includes a rule prohibiting commercial banks from owning or investing in hedge funds, private equity funds or proprietary trading operations. The mandate, one of two chief reforms proposed by former Fed Chair Paul Volcker, was revealed by President Obama in January.
Dodd's bill stops short of implementing the Volcker Rule. Instead, it requires that the government "shall issue final regulations implementing" the ban. But lobbyists for the financial industry argue that it hasn't yet been shown that the rule -- which according to one somewhat questionable estimate would cost the top eight banks $11 billion next year -- would effectively curb any of the behaviors that led to the last financial crisis. Accordingly, industry reps are reportedly scrambling to replace 'shall' with something a whole lot less stringent. As one lobbyist told Business Week:
"We believe the regulators should have the discretion to deal with the situation on a company-by-company basis," said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable, a Washington-based trade group. "You can't have a blanket prohibition on proven risk- management techniques."
When senators meet to debate changes, "our hope is that they change 'must' to 'may,'" Talbott said.
Citigroup already appears to expect the Volcker Rule may not be a rule per se. The bank -- the world's largest financial institution -- is still expanding its proprietary trading unit, Bloomberg reported last week:
Citigroup is trying to preserve the unit, which produces about $100 million of annual revenue, as banks face a proposed ban on proprietary trading dubbed by President Barack Obama as the Volcker rule. Chief Executive Officer Vikram Pandit fed concern among the unit's remaining employees that Citigroup's commitment might wither under U.S. pressure when he told a bailout oversight panel this month that banks shouldn't use their own money to speculate, the people said.