Volcker still seen to rule after all these years

Paul Volcker is still casting a spell in trying to slay the risk- monger monsters, aka proprietary trading desks.迷你倉 REUTERS Former US Federal Reserve chairman Paul Volcker, against all odds, tamed inflation in the early 1980s. Some 30 years later, he casts a spell in trying to slay the risk- monger monsters, aka proprietary trading desks. The Volcker Rule stipulates that banks covered by the Federal Deposit Insurance Corporation shall not engage in speculative trades. In a way, it is a response to the Gramm-Leach-Bliley Act of 1999, which lifted restrictions on commercial bank affiliations with the securities brokerage business. The relaxation of banking supervision is seen as one of the causes of the 2008 financial debacle. However, no one can ascertain if allowing commercial banks to actively make and take bets ends up with bubbles and eventual collapse. But it is safe to conclude, as a risk-management precaution, that the separation of the credit-mini storagereation mechanism and speculation has had a lot of appeal, politically speaking, ever since the Glass-Steagall Act of 1933 limited commercial banks in the speculative business activities of investment banks. Despite being welcomed, the Volcker Rule faced intensive lobbying from banks citing a potential retreat of liquidity and an inability to hedge their bets. So concessions have been made allowing banks to hedge risks reasonably and help them in their role as market makers. In principle, separating risks by setting limits on balance sheets is a prudent measure. Nevertheless, banks may also devise complicated off-balance sheet vehicles to hide risky business, further skewing information asymmetry and making things even worse. At the end of the day, the problem lies not with banks betting on prices but the super-high multiple leveraging embedded in the fractional reserve banking system. Simon Lee is a business consultant .facebook.com/leesimon.hk self storage