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Financial Reform Bill is Done

June 25, 2010

The Wall Street Journal reports that the financial reform bill introduced last year in Congress was inked, after a 20-hour negotiating session, at about 5 a.m. this morning. Included are the “Volcker rule,” which prohibits banks from risking their own funds on capital market gambles, and a very watered-down version of Sen. Blanche Lincoln’s (D-Ark.)  “no-derivatives” rule, which will actually allow the banks to trade most derivatives (not necessarily a bad thing; they use them to hedge interest rate changes and currency exchange rates). WSJ:

Banks, however, would have to set up separately capitalized affiliates to trade derivatives in areas lawmakers perceived as riskier, including metals, energy swaps, and agriculture commodities, among other things.

That’s interesting–do they mean something like CitiGroup’s Phibro?

As expected, the bill contains no curb on too-big-to-fail institutions. Banks will not be downsized, and they are still to be backed by Uncle Sugar–as soon as they can figure out how to get around these carefully-wrought rules and go back to reckless gambling.

Give ‘em a week.

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