Volcker Rule: Now or Never
McGovern says that "obviously JPMorgan Chase made some mistakes in their hedging but what I believe they were trying to do was reduce their risk exposure, while not trying to profit from the market."
McGovern adds that "the spirit of the Volcker Rule says that if you're in investment banking you should not also be an active player in the market. The concept is that you have customers relying on you to assist them in managing their money and trying to help them get the best out of the market. if you are doing that with one hand, while the other hand is playing the market, you might make a choice to play your hand more strongly than your customer's hand."
"That's not the way that these large organizations work," he says, and "it would be the kiss of death, i think, of these organizations used their inside knowledge" against customers' interests.
Large banks "sometimes have to take a position to hedge against exposure," and if the "Volcker Rule covers that type of trading, it is very difficult to stay in business if they can't actively balance their risk in some way," according to McGovern.
Mayer says he "would imagine we will see congressional hearings in fairly short order," and let's face it -- we all love these hearings, as we watch executives get grilled.
But more importantly, Congress can provide a clear direction for regulators as the Volker Rule is implemented, since "investors are going to want to know whether the institution they are investing in is adopting an approved hedging strategy or is in some exception area, and there may be a premium associated with that," according to Mayer, who adds that "the market is sometimes ahead of the regulators."
-- Written by Philip van Doorn in Jupiter, Fla.
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