Banks, Lawyers Struggling to Evaluate Final Volcker Rule

by Donna Borak
The Volcker Rule may finally be out, but the process of understanding the intricacies of the complex regulation that bans the largest banks from making risky trades has only just begun. Financial institutions and their respective lawyers are poring over the 71-page rule, in addition to the 800-plus pages of supplementary materials, to determine how they will comply with it when it will rely so heavily on examiners’ subjectivity. The controversial ban drafted by the five regulatory agencies is intended to raise a wall between proprietary trading and market-making activities at commercial banks. But regulators were careful to avoid drawing bright lines and setting explicit limits, introducing numerous gray areas with ample room for judgment. Despite some media reports that rushed to declare the final Volcker Rule “tougher” or “weaker” than a proposal released two years ago, most insiders said it still isn’t clear. “The 10 Commandments are subject to interpretation,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics. “I don’t know any rule that isn’t. I don’t think it’s a reasonable expectation that any rule won’t have potential issues or enforcement variance among all the agencies in doing it, but I still go back and say I don’t think it’s anything like the issues where industry was basically holding its breathe pending the final rule.”