Banks aiming to comply with a new ban on proprietary trading are struggling to determine which of their products will remain legal and which must be eliminated, the head of Wall Street’s biggest lobby group said today.
‘It’s very difficult, product by product, to figure out what’s the acceptable line,’’ Tim Ryan, chief executive officer of the Securities Industry and Financial Markets Association, said in a Washington speech. “The downside here is if they draw them inappropriately, they crash the capital markets and they crash the economy, which is on very tender footing.”
Wall Street firms will be prohibited from using their own money to wager on securities and markets under the so-called Volcker rule, named for former Federal Reserve Chairman Paul Volcker, who proposed including it in the Dodd-Frank regulatory overhaul. President Barack Obama sought the rewrite of financial-industry rules, which he signed in July, after a 2008 credit crisis sparked by banks’ losing bets on securities tied to subprime mortgages.
Sifma, which counts Goldman Sachs Group Inc. and JPMorgan Chase & Co. among its 680 members, has shifted its efforts to shape the regulatory landscape from Congress to federal agencies responsible for implementing the largest overhaul of financial-industry rules since the Great Depression.
The Financial Stability Oversight Council, a panel of regulators including the heads of the Fed and the Treasury Department, met for the first time on Oct. 1 to begin implementation of the proprietary trading rules. The law allows firms as long as to four years to bring their trading desks into compliance, with the option of extensions, according to an analysis from Davis Polk & Wardwell LLP.
“My biggest fear is that the regulatory apparatus overshoots the mark and we end up with consequences that nobody anticipated,” said Ryan, a former vice chairman of investment banking for financial institutions and governments at JPMorgan.