Paul Volcker is sick and tired of bankers that say it will be impossible for regulators to curb speculative trading, because they can’t define it.
Volcker told Reuters,
Bankers know when they’re doing a proprietary trade, I assure you. If they don’t know, they shouldn’t be in the business.
If there are big unhedged positions constantly, then it’s proprietary trading.
He says that second part is pretty clear, and that’s how regulators can tell if a trade is speculative.
Banks have been saying that their client trading activity is going to feel, in the eyes of regulator, like speculation, and they’re worried that regulators will slam it as prop trading.
Volcker says that argument is “disingenuous,” according to Reuters. “Big, unhedged market bets are easy to spot, as are patterns in a bank’s trading book.” Basically, he explains, regulators need to ask banks about certain positions they’ve taken on: “Why did they buy it and why are they holding onto it that long?”
And he has a message for Goldman, which is lobbying hard and spending millions to try and enfeeble the Volcker rule: “If you want to be a bank, follow the bank rules. If Goldman Sachs and the others want to do proprietary trading, then they shouldn’t be banks.”