BlackRock’s Fink Breaks Down Volcker Rule’s Impact

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Nov. 19 (Bloomberg) -- Larry Fink, chairman & CEO at BlackRock, breaks down the impact and unintended consequences of the Volcker Rule and Dodd-Frank Act. He speaks on Bloomberg Television’s “Market Makers.”

Double per rule in your relationship with the street.

How can that provide you with the liquidity that you need to give your investors the kinds of returns they want when they can't take any bonds or any risks anymore?

I can't fight what society wanted.

Society asks for change and that's through dodd frank and the volcker rule.

They are beginning to implement it and we will be changing the landscape.

Over time, it will work its way out.

We will use the balance sheet to provide markets and that will migrate more and more businesses on to the exchanges.

We will see greater bouts of illiquidity and it will widen bid ask spread then be harmful for active returns if you are a traitor who trades excessively.

But for those investors who are not trading that often for index funds, it not going to change how one invest.

Does society know what they were asking for?

Pension funds -- that is society, that is america.

I don't think much of the unintended consequences.

I think these are intended consequences.

They are trying to make institutions less risky.

They are still distressed with the banking system.

We have said banks are the cause of the problem.

I don't agree with all that narrative and i think banks are much less risky today and could provide a benefit for society.

But our regulators are in charge with implementing the volcker rule and dodd frank.

That's going to be a severe restriction of the balance sheets for market making.

We have been led to believe that wall street had already responded to the bolt -- to the volcker rule.

Firms like goldman sachs had disbanded proprietary trading operations.

Does it still exist question mark rex it has been eliminated in most cases, but what is the definition of flow trading versus rob trading?

For instance, lehman brothers never had a prop desk.

But they did lots of prop.

On their flow desk.

They are coming up with a mechanistic way to analyze what is considered flow and what is considered -- the bottom line is the street is still exploding -- still exploring this area of what constitutes a hedge, report folio adage and market making.

I've never been confused with the responsibility is.

Market, their job is to make markets.

I had no confusion.

I don't call it exploiting.

They were doing their job and in most cases, they were doing their job very well.

There's no confusion about what their responsibilities were.

There jobs will be changed and restrict it as far as what is considered flow and what is considered -- the bottom line is we have not seen the full effect yet.

If the volcker rule is fully implemented, you will see a severe restriction on their ability to take positions.

Where?

Equities or fixed incomes question are huge -- the other issue is under the leverage rules, what does that mean for repo?

If they have to include the repo and there are connections and that, that will restrict the repo market by a great means.

That's one of the big unknowns.

What will be the interpretation related to leverage?

And we've got the challenges.

What would you do to improve margins, expand market share -- it can't just be layoffs forever.

In some cases, they are expanding in different areas.

The large banks are very active in asset management and wealth management.

Those require very little capital.

They could throw up a lot of returns.

Look at what they have done at morgan stanley.

A greater component of their revenues comes from their rocard side.

There is an evolution going on and by and large, that evolution is creating better earnings from these companies and through these better earnings, that's why they are trading at higher pe.

Despite the noise them of the banks and these once security firms are trading at higher levels than three years ago because they have higher-quality earnings.

Do you consider yourself a beneficiary of the volcker rule because no longer is oregon stanley's high-yield desk taking down what rock rock would want to own?

All investors are heard from what it was.

But this is an intended consequence, not an unintended consequence.

I believe over the next five years, the more the markets will evolve to transparent trading platforms and not for the regulators want to bring the business to.

The bid ask spreads, as more business trades on spreads, it will narrow again.

We are in a transition time, not unlike when we created sarbanes- oxley, when everyone was fighting against it and it was a disaster.

We saw a reduction in ipos and a reduction in foreign companies listing here.

10 years later, we have more listings here than ever before.

We have companies like twitter listing and you have a better ipo market today than ever before because we have better protections than other places in the world where you have more evidence of fraud with new issues and companies and we have a more protective market which is good for all investors worldwide.

We will continue the

This text has been automatically generated. It may not be 100% accurate.

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