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Banks are opposed to Volcker Rule and have spent millions of dollars and thousands of hours lobbying against it.Correction: banks, or at least Goldman Sachs, used to oppose the Volcker Rule.
After giving it some more thought they have now decided that they are actually pretty ok with the Volker Rule.
In these comments at Credit Suisse’s financial forum in Miami, Goldman CFO David Viniar made the case yesterday that Goldman’s ROE will not be impacted by the Volcker Rule:
“Interestingly, our ROE does not change materially but the range of outcomes is much narrower. In addition to these restrictions, the market making portion of the Volcker Rule remains unclear and could significantly impact the capital markets. A harsh interpretation of the rule could lead to reduced market liquidity and higher transaction costs. Ultimately, it could lead to lower dealer inventory levels and could be ROE enhancing as we adapt to a less capital intensive business model.”
Via the Financial Times, Viniar also reportedly hinted that bid-ask spreads could widen under the rule.
Or maybe Viniar always knew the Volcker Rule was great but, in one of history’s greatest uses of reverse psychology, he decided to oppose so liberals would support it and eventually it would get passed and then everything would go back to normal.
What is going on here? Our best hypothesis is that this is a straightforward attempt to boost investor confidence by presenting a best case scenario. Remember, as the firm prepared for the implementation of the rule last year, Goldman’s ROE slipped from the mid-double and low-triple digit percentage range it was in in previous years to 3.7 per cent.
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