Banks Worry As Volcker Rule Looms

Jun 18 2010 | 2:13pm ET

As the House of Representatives and Senate hammer out their differences on the U.S. financial regulation overhaul, banks are beginning to face up to the idea that lawmakers may be serious about making the Volcker rule the Volcker law.

While it is still unclear what form—if any—the Volcker rule will take in the final bill, banks are no longer so confident that they’ll be able to hold on to their alternative investment businesses under it. In its strictest form, the rule would bar bank holding companies from owning, investing in or sponsoring hedge funds or private equity funds. Big banks, notably JPMorgan Chase and Goldman Sachs, have hedge fund units that manage tens of billions of dollars.

“There could be a huge fire sale,” one analyst told Fox Business.

The banks themselves have, so far, pooh-poohed the idea that the government would force them to sell or unwind their hedge and p.e. funds. JPMorgan, which has nearly $30 billion in hedge fund and private equity assets, had said the Volcker rule would have no impact on its holdings, because both its p.e. unit and Highbridge Capital Management hedge fund manage money only for clients. But now, according to Fox, they are sounding less confident.

“The interpretations of this rule change by the week and different lawyers say different things,” Mary Sedara, a JPMorgan spokeswoman, told Fox. “The language as it is now written isn’t definitive.”

Others are even more pessimistic, noting that the rule, as currently written, would completely bar banks from any alternative investments activities.


In Depth

Q&A: TCA Fund Management's Bob Press on Small-Cap Private Equity

Aug 25 2016 | 8:55pm ET

The emergence of private credit as a replacement for traditional bank financing...

Lifestyle

Kiawah: Island Reversal

Aug 24 2016 | 9:59pm ET

Looking for real estate investments but the typical real estate fare isn’t cutting...

Guest Contributor

Old Hill Partners: Embrace Illiquidity

Aug 9 2016 | 2:39pm ET

The age-old financial concept that higher yields are the result of higher risk and...