The Financial Stability Oversight Council (FSOC), a body of regulators chaired by the US Treasury secretary, issued a series of recommendations in January on how to implement the Volcker Rule and its ban on proprietary trading.

The report indicates an inclination towards strict limits and prescriptions, including the introduction of quantitative analysis to detect potentially impermissible proprietary trading; it may even request that bank CEOs personally vouch that their compliance systems are up to the job.

While the FSOC acknowledged the implications for banks of tougher rules on competition with other jurisdictions – as well as the strain that additional checks would put on regulators’ staff – it has largely ignored industry objections, erring on the strict side in terms of its interpretation.

And the industry itself has been rather passive in response. Although industry body, the Securities Industry and Financial Markets Association, has re-stated the importance of making these rules workable without killing activities that benefit clients, no major bank has voiced its opinion in public since the announcement of the FSOC’s recommendations.

But if bank management teams are keeping quiet about their feelings, the ripple effect of the Volcker Rule is obvious. In January, for example, Morgan Stanley announced that it would move its proprietary traders into the asset management division, and another swathe of prop traders left Goldman Sachs to join an independent hedge fund – following the same path taken by other colleagues.

But a move away from proprietary trading does not necessarily mean a reduction of proprietary risk. Many banks are still using their own funds to make money. Goldman’s principal investments team, for example, recently invested $375m of the bank’s money into the social networking site Facebook, which avoids the constraints of the Volcker Rule thanks to the long-term nature of the investment.

Or at least this has been the case until now.

Paul Volcker, the former Federal Reserve chairman, is now pushing regulators to include banks’ long-term investments in risk assets in their application of his eponymous rule.

Losses on such investments played a major contribution to Lehman Brothers demise during the financial crisis, such as its $23.6bn leverage buy-out of property group Archstone-Smith in 2007 as the US housing market started to melt down.

Goldman’s Facebook investment strategy has blown-up following the huge media attention the deal attracted. The bank invested with a view to offering exclusive access to the stock to private investors, but in the US it has had to back away from that plan, for fear that regulators interpret the publicity as marketing, which is in breach of US rules on private placements.

Some of the most revealing news in this area has been the introduction of a new category in Goldman’s filing: “investing and lending” with the bank’s own funds, which the bank applied to previous years’ books to disclose $13.5bn losses made from direct investments in 2008, during the financial crisis. At the time, the figure was estimated to be $8.5bn by the bank. This is part of Goldman’s New Year resolution, which have been embodied in its Business Standards Committee recommendations document. Applied to 2010 third-quarter results, which saw trading and principal investments generating $2.37bn pre-tax profits (84% of total profits), investing and lending accounted for $864m.

While responses from banks to new regulations may be getting weaker, their actions (the shifting of prop trading desks out of the investment bank) speak louder than any words.

Some argue banks are happy to comply with the Volcker Rule because it enables them (more specifically their boards) to eliminate the type of risk and temperament that prop traders had introduced in their organisations, without putting themselves at a disadvantage to competitors. Others have suggested that banks would up the ante in their principal investment strategy.

But if Mr Volcker succeeds in expanding the scope of regulatory control, that avenue may well be closed. Banks cannot hide from the Volcker Rule.

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