The "Volcker Rule"

http://www.nytimes.com/2010/06/21/business/21volcker.html?emc=eta1

Our short test to see if the final Congressional effort to put through a financial reform law that was going to be relevant was whether the "Volcker Rule" was kept in as part of House/Senate negotiations. As we understand it, the goal in Congress is to get the overall compromise bill in a position to be voted on by Thursday of this week. That would put the Obama Administration in a positive position for the G-20 meetings which are beginning in Toronto this coming weekend. We guess that would be a similar political move to China's announcement last week that it will begin to allow the yuan to "float."

We also note with interest that this week began a final push by the (for want of a better word) banking lobby to (again, for want of a better word) water down the Volcker portion of the final legislation. Both Senator Dodd and Congressman Frank have already agreed to compromises in the hope that they will get enough votes to pass the legislation. Evidently, use of the term "Volcker Rule" will be kept but some of the "teeth" will be removed. We're not sure that Paul Volcker has agreed to that dental work and we know that he is continuing to lobby for most aspects of his proposal.

Insiders report that one key provision will be kept: a restriction on banks' ability to make speculative bets using their own capital (what Volcker calls "proprietary trading"). The rest ...

We'll see what develops this week.