The "Volker Rule" loaded with reforms to banking activities today was presented to the Senate Banking Committe (Volcker's Testimony to Senate Banking Committee) . It is of no great shakes!
If the rule passes and becomes enacted as legislature, as opposed to populist appeasment rhetoric, it will only wind-back and fine-tune the the Depression-era Glass-Steagall Act. This Act went a great way to dealing with systemic crisis of the day in the 1930s. This act was at the beginning of this Millennium repealed. The effect of which as we all know with great "Harry Hindsight" was to blur the lines between investment banking activity and commercial banking activity, or in the cant: the "Chinese Walls" were torn down.
The implication for fund managment firms is big: presumably they become the only game in town with legitimate proprietary trading books. Does that mean we pile into the listed active managers like Fortress, Blackstone, or UK versions like Ashmore and BlueBay at the expense of Goldmans? (Noticiable the intra-day plummet in the GS stock on the day of Volker's speech to the Senate Committee, also the daily closing price jump of $0.43 or 3.33% in Blackstone stock; GS closed up $3.81 or 2.49%). Not the worst relative value trade trading theme in the play-out of the "Volker Rule" jacanory, yours truly believes.
While GS and Morgan Stanley and few others of the US market find ways to circumvent potential loss of proprietary trading income, Volker did give with the other hand. A wind-fall opportunity for investment bank's corporate finance to underwrite and advise on mergers and divestitures of dark pool trading entities ie hedge funds and private equities. As a conseuence we can look for the next saga of this, I imagine a "too big to fail" hedge fund like LTCM or other will become prominent or come to the fore. The game just moves on, never eradicated.
Also, as sure as the "Volker Rule" in diluted-form will come to be enacted in the US, there will also need to be a global-wide initiative to shore up systemic-risk banking activities. (Recommendation: Buy listed fund managers and sell investment banks). KKSiva 2/2/2010