Volcker Rule Private Equity

Volcker Rule

The Paul Volcker Rule and Private Equity

The so-called Volcker Rule is a financial reform proposal by President Obama's economic advisor, Paul Volcker.  The Volcker Rule proposes reducing the size of banks and placing limits on banks' proprietary lending.  As the President outlined the plan earlier this month, “Banks will no longer be allowed to own, invest or sponsor hedge funds, private equity funds or proprietary trading operations for their own profit, unrelated to serving their customers.”

Although this would in some ways hurt the industry, private equity firms would also gain from the rule because it would reduce and even eliminate competition from large investment banks.  For more information on the Volcker Rule see the Journal's coverage here.  It does seem that Congress will reject the Volcker's push for financial reform but it is possible that a similar bill with his ideas will surface this year. 

I came across this FT interview with Tony James, president of Blackstone, where he discusses the Volcker Rule and how it would impact private equity:

FT: What do you think about the Volcker rule, is it a good idea?
TJ: I think it’s too vague to know, frankly. I don’t think it’s going to in any way make the system more systemically safe. At least as far as managing the private equity hedge funds go, I don’t think that they are sources of systemic risk. Prop trading, hard to know how that’s defined, I don’t know how you define the role between what’s hedging and what’s really speculative bets. I think tampering back speculative bets is probably a good thing, that part of it I agree with.
FT: And by all players or just by banks?
TJ: I think it’s fair to say by people that get the support of the Federal Government, whether that be access to the Fed, deposits that are guaranteed or other debt guarantees.
FT: So, that sounds like you agree with the spirit of the Volcker rule?
TJ: I think it’s hard to implement, though. I think it’s one of those admirable goals and I think that will be in the details.
FT: As regulations currently stand, are regulators requiring banks to put enough capital against proprietary trading?
TJ: I think you’d have to say no in retrospect. I think you’d also have to say they’re not paying enough for the deposit insurance in retrospect.
FT: And in retrospect, do you think Volcker is right to be focusing on this as a particular source of systemic risk? Some people have said no, that it’s beside the point.
TJ: I think it could play a role in it, I don’t think it’s critical. Again, I don’t think you have to get them out of the business, which is what Volcker’s trying to do. I think you can do it with capital requirements and sources of funding and things like that.  Read More

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Tags: Volcker Rule, Volcker financial reform, Paul Volcker, Obama, Financial regulation, financial reform, reforms, Volcker Rule and Private Equity

Link to This Resource: Volcker Rule Private Equity

http://privateequityblogger.com/2010/02/volcker-rule-private-equity.html