You’d think banks would have a lot more to worry about than an unemployed octogenarian. Perhaps a portfolio of worthless subprime mortgage securities? Nope. The government will bail us out. How ’bout dwindling revenues in the face of a continued economic downtown? No worries, we’ll just start charging fees for everything our customers do, from debit card transactions to writing checks. Yeah! And we’ll add toll booths to the drive through lane at all our branches.
What is it that keeps bankers up at night? The Volcker Rule of course; the simple and elegant solution to excessive risk in the banking industry: no proprietary trading. Make your money the old fashioned way: good loans and fair services to consumers. But taking multi-billion dollar debts each night in derivatives and various esoteric currency swaps? Not anymore. Not since you took us to the brink of depression and cost American consumers (and their children’s children) a boatload of money and in many ways the jobs of millions who remain unemployed.
So what’s the strategy of the banks? Make the simple Volcker Rule as complicated as possible. Leak it through your trade association, the American Banker, and let a phalanx of $1,000/hour lawyers from Davis Polk parse the rules and try to incorporate exception upon exception upon language that must be interpreted with sub-parts to the sub-parts. And once that is accomplished? Yep you guessed it. Throw up your hands and say, “Overregulation. It’s too complicated.”
It’s actually rather simple. Banks want to trade instead of loan money because in the short run trading is more profitable. Those profits result in an increase in the banks’ stock price (thereby increasing the value of options and restricted stock for executives) and in higher bonuses (can you say Porsche Panamera, summers in Nantucket). But with that short run potential comes immense risk; risk the banks have already shown they cannot handle.
And the answer from Paul Volcker, who is feared because he is respected and beholden to no one, was rather simple too: “No.”