Volcker bank-risk rule starts with little fanfare

St a r t i n g We d n e s d a y ( T h u r s d a y, Manila time) Wall Street banks have to comply with perhaps the most significant new restriction on their activities since after the Great Depression. It was greeted with a shrug. The "Volcker rule," the regulation banning taxpayer-insured banks from making bets with their own money, arrived with little fanfare, showing how much Wall Street has changed since Congress ordered regulators to write the rule as part of the Dodd-Frank financial law five years ago.

The big banks that fought for years to change the rule have for the most part already fallen in line. Firms such as Citigroup Inc., Bank of America Corp., Morgan Stanley and Goldman Sachs Group Inc. have shed their proprietary-trading desks, pulled money from certain investment funds and ceased other activities that would run afoul of the rule's restrictions.

J.P. Morgan Chase & Co.'s chief financial officer, Marianne Lake, said last week the bank has made sufficient changes that she doesn't expect the rule "to have a direct impact on near-term trading."

Much remains uncertain about how the rule will work. Regulators have checked on banks' preparations but won't start conducting the first audits for compliance until later this summer, officials said.

"No one has experienced what life [under the rule] is going to be like, because they haven't had to comply and they haven't been examined yet," said Robert Maxant, a partner at consultancy Deloitte & Touche LLP.

Yet many of the activities prohibited by the Volcker rule, named for its originator, former Federal Reserve Chairman Paul Volcker, already have moved away from banks. In some cases, traders have left banks altogether. A total of 1,428 new hedge funds were launched from 2011 to 2014, according to Preqin, a firm that tracks the industry. As many as 214 of those were created by employees who left banks, the company estimates.

Hedge fund PDT Partners is a trading unit led by the mathematical specialist Peter Muller that split off from Morgan Stanley in 2012. PDT has $3 billion in capital to invest and 150 employees, double its original staff size, a person familiar with the firm said.

Meanwhile, the five largest US investment banks cut staff on bond sales and trading desks by 18% from 2011 to 2014, according to Coalition Ltd., a research firm.

Other bankers are learning to live with the restrictions, albeit with some consternation. At a Washington event earlier this month, Roger Blissett, head of US strategy at Royal Bank of Canada's capital-markets division, was asked what he would change about the Dodd-Frank law. "That's lowhanging fruit," he said. "The Volcker rule."

One senior Wall Street trader estimated he spends around twice as much time on compliance-related matters as he did before Dodd-Frank. The law "has been a bull market for lawyers and compliance," he said.