Only The Biggest Banks Will Be Affected By New Rule Reining In Risky Trading

Since the passage of the Dodd-Frank financial reform law, lobbyists for Wall Street banks have been trying to gum up the implementation of many of its rules. Particular ire has been reserved for the Volcker Rule, which is meant to rein in the sort of risky trading that contributed to the financial crisis.

While the biggest banks may kvetch about the Volcker Rule, the vast majority of the nation’s banks won’t be affected by it, as a new report from Public Citizen finds:

There are 7,181 federally insured banks in the United States. After a new rule is implemented to prohibit banks from making risky trades, the business activities of 7,175 of these banks will remain essentially unchanged. The Volcker Rule, among the most controversial aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act, will prohibit federally insured banks from engaging in proprietary trading, which involves speculation through short-term trades in stocks, derivatives and other securities.

The financial crash, borne of reckless banking practices, cost the economy about $12 trillion, give or take. But Wall Street lobbyists have succeeded in elevating concerns over the relatively minuscule costs of the Volcker Rule to a paramount position in the debate over how regulations should be crafted to implement it. In reality, the Volcker Rule will mean no change, no closure of business divisions, no costs from foregone financial activity, for more than 99.9 percent of banks.

The rule will, according to an estimate by Standard & Poors, reduce profits at the eight largest banks by a combined $10 billion. However, that’s out of a combined $63 billion in profits last year. And S&P also notes that those same banks would be made safer and more stable by the rule. A study by economists Arnoud Boot at the University of Amsterdam and Lev Ratnovski at the International Monetary Fund found that something like the Volcker Rule is necessary to prevent big banks from threatening the whole economy.