Sifma's Gregg: Banks Are Ready for Volcker Rule

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Dec. 11 (Bloomberg) -- Sifma CEO Judd Gregg discusses the bipartisan U.S. budget deal and the implementation of the Volcker rule. He speaks with Trish Regan on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Let's talk a little bit about this budget deal.

Do you think it is enough?

No, it's not enough, but it is a very significant step.

Up until now we really have not had both parties at the table in a constructive way.

What you see with this agreement is that senator murray and congressman ryan have shown that there is a way to reach agreement, that there is a path forward that can be bipartisan.

The big issues are taught him and reform, and you cannot do that unless you do it in a bipartisan way.

The fact that the process has been set up where it agreement can be reached may have a significant impact on the deficit down the road, so it is very positive.

Let's talk about some of those other issues such as corporate tax reform.

Is there still hope that something could become -- could be done when it comes to corporate tax reform?

Yes, and that is the positive.

You have both chairman camp in the house and chairman baucus in the senate who runs the finance committee trying to do something.

I expect you're going to see, as we head into next winter and into the spring especially, a very robust debate around the issue of how you do major tax reform.

Can they reach closure?

I'm not sure, but i do believe they can make progress on getting the issue before the public thomas and hopefully starting to -- to the public, and hopefully starting to sugar it off as they say in the north.

The volcker rule that has been over three years in the making, finally some clarity.

There is concern that the banks will be hindered by this and the ability to hedge, which has a real effect on all the other companies out there, main street company's, is going to be impacted negatively by all this.

Give us your sense of how it's all going to stack up for the banks.

Well, we don't know yet.

It is a thousand page bills for a proposal and sorting through it will take some time.

Most of the major financial houses have already adjusted their criteria activity i'm a so they have addressed the issue.

The real concern here is, if you get too much regulation in this area, you start contracting liquidity in the marketplace.

Liquidity is really the fuel that drives the american economy.

The ability of people to get loans, to get capital at reasonable prices is the core of how our economy expands.

That is called liquidity.

We will have to wait and see how it plays out.

The rule is so complex and so large, in just the number pages that are involved, it's going to take a while to figure it out.

Oil hedging as an example, what oil prices will look like over the next 6-12 months.

Part of the way they do that is by using a bank, and someone is going to take the other side of that trade.

How do you distinguish between a service you are providing for a client and something that you might make money on?

As i understand the proposal, and i haven't read it in depth yet, they are trying to identify fairly closely to hedge with the actual event that is being hedged, versus separating them.

You take the example of the airline hedging oil, if a financial house was being a market maker in that, they would have to tie it to the actual hedge, the oil.

It's very possible you could do that.

The question will be coming if you contract that relationship too much, then you end up contracting liquidity and you make it very hard for various industries which need hedges to get them when they need them.

So as i said, this is such a complex issue, how it works out is still to be seen.

The goal of volcker was to make sure that deposits that were insured by the american taxpayer were not used by the financial system to basically make money through investments and what might be called speculation.

I believe that's arty been addressed.

Most of the financial houses do not do that any longer.

They have taken propped rating off their desk relative to that.

Now we have to make sure we don't undermine the robustness of the economy as we put in place these rules as they come down, rule such as volker.

The compliance departments will be very busy.

Thank you for joining us today.

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