The FT’s John Gapper heard Paul Volcker speak about financial regulation in Florida today:
[H]e emphasised this afternoon that he was “not proposing a return to Glass-Steagall” because he regarded securities underwriting as “a reasonable banking function analogous to lending”. Nor did he want to bar banks from mergers and acquisitions advice.
The only activities he believed should be split out by legislation or regulation from commercial banks were hedge fund and private equity fund management and proprietary trading. Banks should be able to do “whatever Goldman Sachs and Morgan Stanley did in 1980″.
That’s an interesting way of putting it, but I’m not sure where it gets us. It’s my understanding that most of the trading risk that Wall Street firms take on is in the course of trading for clients, not proprietary trading. And it was underwriting of mortgage securities (or mortgage CDOs, if you can call those securities) that got Citigroup, Merrill Lynch and others into so much trouble.
Not that I have a better idea for where to draw the dividing line, if there is to be a dividing line. Do you?