Bailout

Can Goldman dodge the Volcker rule?

By Felix Salmon

The Volcker rule is an attempt to ensure that banks which are too big or interconnected to fail — institutions which will certainly get bailed out if they blow up — don’t take inordinate risks on their own account. So this worries me:

Some institutions will be able to avoid facing the Volcker rule by shedding their insured deposits, according to U.S. Deputy Treasury Secretary Neal Wolin on Monday.

Goldman Sachs Group, which funds fewer than 5 percent of its assets with deposits, could easily change its funding profile to get out from under the rule.

Why should an enormous bank like Goldman get out from under the Volcker rule just by dint of not taking deposits? If it’s a leveraged institution with a risk of systemically-damaging failure, then it’s exactly the kind of bank which should be subject to the rule. Or is Treasury, here, trying to weaken Volcker’s intent?

Full post as published by Macroprudential on February 01, 2010 (boomark / email).