Maybe you know all about the proposed hedging and market-making exemptions in the Volcker Rule. But a Reuter’s piece says a lesser-known part of the rule – the liquidity account exemption – is stirring debate in anticipation of the final rulemaking.
"Banks have lobbied regulators to replace the liquidity account exemption with a wider one, which would carve out a broader category of accounts dedicated to ‘asset liability management,’ or ALM," writes Reuters.
Some fear the exemption as currently written could allow trades like the infamous ones by JPMorgan's "London Whale." The exemption as it stands “deeply undermines the applicability of the Volcker firewall," said Senator Jeff Merkley (D-OR).
Others say argue the exemption is too narrow as written to be effective. "The more tightly you draw (the Volcker rule) to avoid loopholes with regard to liquidity risk management, the harder you make it for banks to control one of the most significant systemic risks," said Karen Petrou, of Federal Financial Analytics.
For the full piece see "Volcker rule liquidity carveout stirs fears of next Whale trade" (may require subscription).