So for the most part, the financial reform bill that’s getting closer to passage is acceptable to Wall Street.There are no leverage caps, there’s no Volcker rule, and there’s no cap on size.
But there is a rule stuck in there — on behalf of Sen. Blanche Lincoln — that would severely curtail banks ability to deal in derivatives. Apparently it was really only entered so that Lincoln could establish some left-wing credibility to win her primary. But she didn’t, and now she’s headed for a runoff.
Even Paul Volcker doesn’t like the rule, but apparently it’s not coming out of The Senate version.
What to do?
Well, it’s possible that it will be made to disappear during the conference with the House of Representatives.
But what if it isn’t?
Well, as John Harwood on CNBC noted earlier, it’s likely that regulators would find away to weaken it. Maybe they’d allow banks to spin off derivative operations into a subsidiary or something like that.
That’s nonsense. Look, we’re not in favour of bad rules, and by all accounts the Lincoln amendment seems bad.
BUT, if it passes, it passes, and it’s ridiculous and un-democratic that regulators could just define it to their liking and to the banks liking.