Volcker takes aim at long-term investments

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Volcker takes aim at long-term investments

By Tom Braithwaite

Paul Volcker, the former Federal Reserve chairman, is encouraging a crackdown on banks’ longer-term principal investments as his plan to prohibit short-term proprietary trading comes closer to implementation.

Goldman Sachs’ investment in Facebook is the sort of deal that could be affected if Mr Volcker’s call to curb banks’ longer-term investments is taken up by regulators or Congress. Democratic congressional aides are already examining the issue

Mr Volcker told the Financial Times that regulators had made “a good honest effort” to develop his “Volcker Rule” in a study released on Tuesday. The rule, which became law as part of the Dodd-Frank financial reforms, prohibits banks from trading on their own account or investing in private equity or hedge funds.

But Mr Volcker said he and Congress had perhaps “lost sight” of longer-term activities, which are considered merchant banking and are authorised under banking rules. “Potentially what is ‘merchant banking’ and what is a ‘proprietary trade’ needs some delineation, I think,” he said.

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Panel Begins to Set Rules to Govern Financial System (Volcker Rule)

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