The Volcker Rule: Toothless Then, Even More Toothless Now

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

Volcker Rule - Not Worth Reacting To

The Final Draft of the Volcker Rule was published for comment at the end of September.  Even skipping our traditional rant about government bureaucracy, it is a document over 200 pages long, in which the word “exemption” occurs on no less than 100 pages (it is used 426 times in total).  At a quick glance, each section starts with a fairly draconian statement.  Then each subsection waters down the bold initial statement with exemption after exemption.  As we began the daunting task of trying to make sense of these rules and what they might mean in practice, it became clear there was little point in rushing to do the work.

Why is working through this doc largely pointless?  Because it is unlikely to ever be implemented in anything that resembles the current form.  The rules are meant to be in a final form by July 21, 2012.  Assuming that deadline is met, the banks then have 2 years to conform with the provisions and can petition the board for up to 3 additional 1-year extensions.  Which brings us to July 21, 2014 at the earliest, and possibly July, 2017.  Whether or not there is a new government in place before the 2014 deadline, there will certainly be another administration and president in place by 2017.  Whatever the banks ultimately have to live with, it is highly unlikely that it will resemble this.  If the Basel Accords are any indication, the battle to water down the rules will continue up until the last minute.

In the meantime, many of the Volcker Rules would be unnecessary if more products were put on exchanges.  So many of the “flow trading” concerns that are being raised by this document would go away if the regulators pushed for more transparency, more clearing, and more exchange traded products.  Progress on that front would go a long way to decreasing risks.  Of all the banking nightmares, not once have I heard of an equity “sales-trader” putting the firm at risk. 

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GeneMarchbanks's picture

'a document over 200 pages long'

So it's a novel. Fiction I presume?

Fish Gone Bad's picture

The only reason a bill is long is to fill it up with weasel words, and add additonal ways to cheat people.  The Constitution of the United States is one page long.  So is the Bill of Rights.  If anyone wants to use my idea for political gain, please do so: No bills can be written so long that they essentially become unreadable in one day.  The maximum length a bill should be is 10 pages, and ideally, one (1) page.

oogs66's picture

great points....though it helps the lawyers stay in jobs

mkkby's picture

" Which brings us to July 21, 2014 at the earliest, and possibly July, 2017."

Nobody in the corrupt SEC/FDIC/CFTC... blah, blah, blah -- will EVER enforce anything detrimental to the banks.  It's like writing a message in a bottle to throw in the ocean.

Ura Bonehead's picture

The maximum length a bill should be is 10 pages, and ideally, one (1) page.

Of course, how many pages would THAT bill be? Just saying...

And the irony is that writing the one-page Constitution took a relatively short period of time. After all, the framers had farms full of slaves to run. Hippocratic politicians are nothing new, I guess?  Unfortunately, today’s politicians have nothing better to do with their time (and our money).

covert's picture

the devil is in the details, and complexity hides the truth! lol


Bastiat's picture

Hard to see how the current fiat system can make it to 2014.

augie's picture


my puts expire in december... 

Caviar Emptor's picture

It's been an unwritten rule since the crisis that we'll make big speeches about rules and pass lots of new rules and then go back to playing by the original rules which were no rules at all . There's a big fat hungry dog we need to feed and soon. So let him steel from the other dogs. 

PaperBear's picture

“over 200 pages long, in which the word “exemption” occurs on no less than 100 pages (it is used 426 times in total).”

Perhaps only the so called little guy (non-insider) will be bitten in the hind end by this.

RSloane's picture

So why can't we rename this the "Volcker Exemption Rule" kind of like the "Obama Healthcare Exemption Plan"?

Melin's picture

"If only the regulators would _______________. . ."

Capitalism and individual liberty require that there be no government "regulators."  Private exchanges can regulate to their hearts' content and compete for voluntary participation.  If someone's committing fraud, then the government is invited and required to respond.

Why oh why do really smart people still think government has a role in "managing" economies? 


unununium's picture


It worked for 60 years and it will work again.

Spigot's picture

Meaningless in a klepto-cratic non-ocracy. These idiots can't even follow their own prior laws/rules. How do more non-enforced laws help the situation?

Spigot's picture

Oh, RIGHT! I forgot. Rules are for the little people. Rule makers (such as Congress) do not have to live under law. They have enough money and power to circumvent anything except, potentially, the hand of God.

kaiserhoff's picture

Tchir has this about right.  The real risks are counter-party and off balance sheet crap.  That won't improve until there is more use of exchanges... which reduces bid/ask differential for the big dogs.

Nedly66's picture

The broad rule + hundreds of exemptions format is standard for pretty much financial and tax regulations today.

The headline rule makes it palatable to the public, and the hundreds of exceptions (read loop-holes) make the rule "ambiguous" enough so banks and tax payers justify "agressive" positions vis-a-vis the ambiguous should the SEC stop watching midget porn and actually prosecute them.

Nothing new here, and nothing to indicate this type of phony regulation will cease anytime in the near future

RockyRacoon's picture

The "rule" is heralded by the MSM as a fix for this pesky problem.   The whole thing was for show to let the regular folks think that "government is doing something" about banking.   Right.   Now they can all rest easy.

Gold Man-Sacks's picture

Wow, that's one really long rule.