If We're Lucky Volcker Rule Will Make Banks Less Transparent

I guess the Volcker rule comes out tomorrow and you can read about it then but why should its nonexistence stop you today? Here are DealBook and Bloomberg News articles that are best read as companion pieces: Bank lobbyists think that the Volcker rule is too strict and will sue to weaken it, while anti-bank lobbyists think that it's too lenient and will lobby to strengthen it. No one knows what it says. Opinions, and lawsuits, on whether it's too strict or not strict enough do not turn on what it actually says. As Tyler Cowen puts it: "Many people, even seasoned commentators, approach the Volcker rule with mood affiliation, starting with how much we should resent our banks or our regulators or how we should join virtually any fight against either 'big banks' or regulators."

I guess I'll sidle over to the anti-Volcker-rule side of the mood affiliation.1I mostly think the Volcker rule -- which will prohibit U.S. banks from engaging in "proprietary trading" but with exemptions for "market-making" and "hedging" -- is dumb for all the obvious reasons. It is impossible to conceptually distinguish "prop trading" from "market-making," so the Volcker rule will make market making more difficult and expensive and reduce market liquidity.2It is impossible to conceptually distinguish "prop trading" from "hedging," so the Volcker rule will make banks less hedged and more risky.3