Banks Dramatically Reshape Trading to Comply with Volcker

December 5th, 2014

The biggest banks around the globe are preparing for the July 21, 2015 deadline for compliance with the Volcker Rule.  Banks have considered a variety of compliance strategies, including spinning off investment banking units into new and separate entities.

Royal Bank of Canada (RBC) recently detailed its plans for complying with the major rulemaking from Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).  RBC appears to be prepared for the deadline, but compliance has come at a cost.  The bank has reported more than $40 million in added compliance costs and lost revenues. RBC has had to exit approximately half of its proprietary-trading strategies to conform with the Volcker Rule restrictions as well as sell off credit positions and transition its market-making strategies.

Notably however, RBC gets a small portion of its overall revenue from proprietary trading. For banks with larger trading units, complying with the rule will pose much larger challenges and trade offs.

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