The Proposed [Volcker] Rule also evinces a remarkable solicitude for the interests of banking corporations over those of investors, consumers, taxpayers and other human beings.
Wall Street is either dying or doing completely fine, depending on whose facts you use
We’re not going to choose sides in this battle — though we certainly do have a side — but suffice to say there’s been a lot of reaction to Gabriel Sherman’s cover story in New York magazine about the ostensible “end” of Wall Street. (We suggest you read Chris Lehmann’s takedown for a full
excoriation explanation of the piece.)
But we thought it would be useful, in the the journalistic interest of finding the truth, to compare Sherman’s piece to a recent story by Reuters’ Lauren Tara LaCapra. The former says Wall Street has been completely and utterly changed, chastened and sufficiently hamstrung by new regulations. The latter says something completely different.
And yet, from the moment Dodd-Frank passed, the banks’ financial results have tended to slide downward, in significant part because of measures taken in anticipation of its future effect. Since July 2010, Bank of America nosed down 42 percent, Morgan Stanley fell 25 percent, Goldman fell 21 percent, and Citigroup fell 16—in a period when the Dow rose 25 percent. Partly, this is a function of the economic headwinds. But the bill’s major provisions—forcing banks to reduce leverage, imposing a ban on proprietary trading, making derivatives markets more transparent, and ending abusive debit-card practices—have taken a pickax to the Wall Street business model even though the act won’t be completely in effect till the Volcker Rule kicks in this July (other aspects of the bill took force in December; capital requirements and many other elements of the bill will be phased in gradually between now and 2016). “If you landed on Earth from Mars and looked at the banks, you’d see that these are institutions that need to build up capital and that they’re becoming lower-margin businesses,” a senior banker told me. “So that means it will be hard, nearly impossible, to sustain their size and compensation structure.” In the past year, the financial industry has laid off some 200,000 workers.
And, now, LaCapra:
Wall Street has been lashing out against the Volcker rule since it was proposed, but a senior Goldman Sachs executive said on Wednesday the trading restriction might actually help the investment bank’s profitability.
A harsh interpretation of the rule, which bans speculative trading by commercial banks, could help return-on-equity levels because banks would be able to demand more money from clients for executing trades, Goldman Sachs Group Inc Chief Financial Officer David Viniar said at a Credit Suisse conference in Miami.
"Regulation will undoubtedly bring about new ways in which the industry must manage its operations and deliver its services to clients," Viniar said, but regulatory challenges "must be effectively navigated in order to provide shareholders with acceptable returns."
Viniar did not provide a target for Goldman’s return-on-equity, but in a slide presentation he indicated that if Goldman were to exclude profits and losses from businesses affected by the Volcker rule from 2004 through 2011, the bank would have had the same average quarterly returns with less volatility