Financial Stability News

News about financial stability, central banking and theory of money

Japan and Canada warn on Volcker rule impact

Progress in implementing the Volcker rule in the US is slow, while the conservative government in the UK is rapidly moving along with its own version, published last year by the Independent Banking Commission. This article in the FT notes that other countries (notably Japan and Canada) are now getting cold feet about the indirect repercussions of stricter rules for proprietary trading in the US and UK.

They argue that prop trading provides much needed liquidity and forcing US banks to pull out would cut demand and add strains to the already stressed market.

The report by the US Treasury on implementation of the rules was not very specific, with several hundred open questions for hearings. It is a well known secret that neither the Fed nor the Treasury is favoring the rule. It remains to be seen if it will ever be implemented in the US. The UK, on the other hand seem closer to some sort of proposal. Not so surprisingly, given that their banking sector currently is > 500 % of GDP. They can ill afford another public bail-out.


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