So, the New York Post got this one wrong: the Volcker rule is not, in fact, going to be replaced by a simple requirement that banks hold more capital.
No matter. On Wednesday the White House sent fresh details on the proposed rule, which would significantly affect banks’ proprietary trading activities, to Congress.
The key new element — mentioned in a summary of the proposals — would appear to be this:
Financial firms would not be allowed to grow by acquisition above 10% of the liabilities of the financial system: The existing cap on deposit concentrations has become less effective as large banking firms have increasingly relied on other sources of funding, and has given these firms an incentive to shift towards riskier sources of funding. We need to update existing concentration limits to check future growth of our largest financial institutions and to make the system safer. The proposal would not allow a financial firm to acquire another company if the resulting firm would have more than 10% of the liabilities of the financial system.
We assume that, by “financial system,” the Obama administration actually means “US financial system,” as not everyone in the world is American.
But hey, more details here if and when we get them.
UPDATE: the full proposed Volcker rule language is available here.
Related links:
Volcker turns the screw on Goldman – FT Alphaville
The Obama-Volcker remarks in full – FT Alphaville
Moody’s chimes in on the Volcker rule – FT Alphaville