The Financial Times published the article “Volcker Rule Reforms Promise Banks Trading Boost” on the Fed’s recent suggested changes to the Volcker Rule which would give banks more flexibility. The article discusses the proposed approach allowing banks to set their own boundaries in market-making activities, which would shift the previous burden of proof placed on banks to demonstrate that they are not engaged in banned proprietary trading and are only facilitating client trading as market makers. Milbank Financial Institutions Regulatory partner Douglas Landy, who was a former Federal Reserve Bank of New York lawyer commented, “the big banks could be tempted to build inventories, if the proposals were passed broadly as outlined.” Following the financial crisis, many banks have reconsidered their financial holdings, and Mr. Landy states, “In the Fed’s judgment, inventories will follow much more closely what the markets will bear; if they seem too large compared to competitors, the banks will have to explain why.” He added, “But the Fed won’t try to second-guess, as long as [the inventories] are justifiable.”
