Bloomberg News

Volcker Rule May Mostly ‘Go Up in Smoke,’ Goldman’s Levitt Says

October 13, 2011

Oct. 13 (Bloomberg) -- The Volcker rule, which would bar banks from trading for their own accounts, is likely to be postponed and weakened amid lobbyists’ resistance, said former Securities and Exchange Commission Chairman Arthur Levitt, who advises Goldman Sachs Group Inc.

Wall Street “will be doing all it can to delay this until they hope there’s a Republican president and a Republican Senate,” Levitt said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “This is going to be a long slog, and much of that rule that you see today is going to go up in smoke.”

A version of the rule, released by regulators this week, “is much sterner, much more rigorous than most people expected,” Levitt said. It will likely prompt firms to consider giving up their status as bank holding companies to avoid its costs, he said, without naming specific lenders.

Goldman Sachs and Morgan Stanley were the biggest U.S. securities firms before they converted to bank holding companies after the September 2008 bankruptcy of Lehman Brothers Holdings Inc. Both became subject to regulation by the Federal Reserve and won access to central bank programs such as the discount window, which are designed to protect deposit-taking banks.

The rule, named for former Fed Chairman Paul Volcker, was included in last year’s Dodd-Frank regulatory overhaul to rein in risky trading that helped fuel the 2008 credit crisis. The central bank, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency worked with the SEC on a draft issued this week.

In its current form, the regulation would impose costs on lenders and drive capital to non-bank market makers, said David Hilder, an analyst at Susquehanna Financial Group LLP, in a note to clients earlier this week, in which he also predicted that firms may consider giving up their bank status.

Levitt, a Democrat appointed to the SEC by former President Bill Clinton, is also on the board of Bloomberg LP, the parent company of Bloomberg News.

--Editors: David Scheer, Steve Dickson

To contact the reporters on this story: Charles Mead in New York at cmead11@bloomberg.net; John Tucker in New York at jtucker@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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