Under the new financial reform bill’s Volcker rule, banks are supposed to stop trading with their own money.
But banks haven’t pulled back on their risky trades so far and are unlikely to do so in coming years as the new rules go into effect, experts tell The New York Times.
That’s because banks will still be allowed to execute speculative trades for their clients, giving them great latitude to do it for themselves tool.
Banks certainly haven’t shied away from risky trades so far this year. JPMorgan Chase and Goldman Sachs, generally acknowledged as the two strongest banks on Wall Street, each lost more than $100 million on trades executed for customers between April and July.
“You can use client activity as a cover for basically anything you are doing,” Janet Tavakoli, an independent financial consultant, told The Times.
It’s very problematic that losses like this are showing up. It’s a prime example of what the financial reform bill doesn’t address.”
Goldman’s customer businesses tend to have a proprietary overlay, a former Goldman official told The Times. “That overlay can effectively allow them to make directional bets by using the customer flow to get them there.”
Talk that Goldman is selling its proprietary trading operation is just that – talk, says Fox Business News correspondent Charlie Gasparino.
“What they tell me over there: there was never any plan to spin the equity proprietary trading desk off,” he said.
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