Regulators seek to curb Wall St. trades with Volcker rule

Tue Dec 10, 2013 6:49pm EST
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By Emily Stephenson and Douwe Miedema

WASHINGTON (Reuters) - U.S. banks will no longer be able to make big trading bets with their own money after regulators on Tuesday finalized the Volcker rule and shut down what was a hugely profitable business for Wall Street before the credit crisis.

After struggling for more than two years to craft the complex rule, five regulatory agencies signed off on the nearly 900-page reform that included new tough sections narrowing carve-outs for legitimate trades.

The rule is expected to eat into revenues at large investment banks such as Goldman Sachs and Morgan Stanley, even if many have already wound down some of their trading desks in anticipation of the rule's release, and may spark legal challenges.

Reform advocates cheered the changes in a sign they were tougher than the original proposal in November 2011, but much of the impact will be down to how regulators police banks to make sure they do not try to pass off speculative bets as permissible trades.

"At some point someone is going to have to write up a manual for examiners on what to look for and ... how to enforce that stuff. That's going to be a really important document," said Bradley Sabel, a lawyer at Shearman and Sterling in New York.

Better Markets, a pressure group critical of large banks, reacted positively to the final rule, calling it a "major defeat for Wall Street."

Bank of America CEO Brian Moynihan said at a conference on Tuesday that it cost his bank up to $500 million of revenue per quarter when it exited the trading activity banned under the Volcker rule.

But he said the final text should not force the bank to make any further significant adjustments. "I don't think it changes anything dramatically," Moynihan said.   Continued...

Former Chairman of the U.S. Federal Reserve Paul Volcker addresses the Economic Club of New York in this May 29, 2013, file photo. REUTERS/Mike Segar/Files