Volcker ... Finally

Receiving Wide Coverage ...

Final Lap for Volcker Rule? A final version of the Volcker Rule, arguably the most controversial element of the Dodd-Frank Act, is expected to be approved by the five U.S. federal banking regulatory agencies today. The law is meant to prevent banks from engaging in risky trading for their own accounts, considered a factor in the downfall of some Wall Street firms in 2008. (A more modern example is JPMorgan Chase's London Whale incident, which resulted in a $6 billion loss for the bank.) Some say the Volcker rule, which was first announced in January 2010, is too tough, others that it's not tough enough.

"Wall Street is expected to scour the rule for loopholes and consider whether to challenge it in court," says the New York Times. Wall Street firms, of course, claim proprietary trading is a necessary means of hedging against risk and not a primary cause of the financial crisis. The Volcker rule actually allows proprietary trading for the purpose of hedging. However, it requires banks to explain exactly what they're hedging against.

Banks may be able to evade the rule by disguising proprietary trading as "market making" trades on customers' behalf, the Times suggests.

But the Wall Street Journal emphasizes the rigor of the recently rewritten rule. It "will require banks to provide 'demonstrable analysis of historical customer demand' for financial assets they buy and sell on behalf of clients. That essentially requires a firm to prove it has engaged in a certain type of trading previously. It is an effort to keep banks from attempting to disguise bets made for a profit—so-called proprietary trading, which would be banned—as permissible market-making activity."

And bank executives "will be required to 'attest in writing…that the banking entity has in place processes to establish, maintain, enforce, review, test and modify the compliance program' set up for the Volcker rule."

The Journal also offers a tutorial of sorts on the new rule.

The Financial Times focused on the reaction of long-haired CFTC regulator Bart Chilton, whom it describes as "one of the most colourful US regulators," who has dropped his initial opposition to the Volcker Rule.

Chilton says the finalized rule closes loopholes and ends speculative trading by requiring banks' hedges to be "designed to mitigate and reduce actual risk, and not just by an accidental or collateral effect of the trade."

"You can't just say, 'Ah, oh, that? Hmm, it was a hedge'," said Mr Chilton, who will be leaving the CFTC in a few weeks. "Nope, we aren't going to let ya play that game. The position needs to be correlated with the risk."

If the rule does pass, it won't go into effect until July 2015.

In Dealbook, Wharton professor Daniel Zaring says that having a hodgepodge of five regulatory agencies enforce the Volcker Rules means problems will inevitably occur. "Issued by five agencies, more or less at the same time, it is one rule with many masters," he writes.

Financial Times

A small mortgage boom should help the U.S. economy, the U.K. paper says.

Outstanding mortgage debt grew for the first time since 2008, rising .9% in the third quarter of 2013, according to U.S. Federal Reserve data. "The rise in mortgage borrowing is a sign that US households are making progress in their painful develeraging after the financial crisis, and may be better able to increase their consumption, supporting economic growth next year," the newspaper reports.

New York Times

Will U.S. law apply to Bitcoin? Peter Henning, a professor at Wayne State University Law School, has closely examined the legal issues around the virtual currency. "Bitcoin itself is neither good nor bad, just a new means to conduct business, but virtual currency operates in ways that make it harder to prosecute violations," he writes. But as the currency grows in popularity and use, many existing laws could be expanded in scope to cover it.

The anonymity of Bitcoin and the fact that it operates outside the current banking system make it difficult to trace transactions, he says. (This is one reason why many people support it.)

But wire fraud laws might apply to Bitcoin fraud, he writes. And recent guidance from the Financial Crimes Enforcement Network, a bureau of the Treasury Department, requires administrators and exchangers of virtual currencies to report transactions, including the identity of Bitcoin traders. Bitcoin miners could then be considered money transmitters subject to money laundering laws. Investments in Bitcoin could fall under the SEC's jurisdiction. And packaged Bitcoins could qualify as commodities subject to regulation by the CFTC. Federal tax laws could be applied to those paid in virtual currency or those who reap capital gains from selling Bitcoins.