Obama bans proprietary trading at big banks!

Question

What I want to know is, will this affect recruitment this season? Will there be less demand for S&T guys now, and will there be an influx of former bank traders competing for positions at other types of firm, such as investment firms? Maybe some of the traders will be moved into analyst positions for the time being, resulting in less research positions available for the MBA crowd?

However, maybe it will be happy days for the IB track, which now needs to provide a greater share of bank's income.

What do you guys think? Are we seeing the first signs of another mammoth recruitment squeeze? Too early to tell? Or am I talking out of my ass?

;P

Jerz · Answer

Well first off, nothing has been banned yet. Obama merely proposed a ban on proprietary trading at banks (and I'll leave it to you to judge which orifice he was speaking from at the time). It's way too early to predict the exact structure of such a ban that would make its way through Congress, and even then I'm sure there people will find ways around it.

DrSatisfaction · Answer

not sure if it's realistic. he can reduce prop trading and risk taking in banks, but he can't eliminate really. i mean the flow desks will just hold on prop positions in their books. how can regulators even begin to define what's prop and not in this case?

still though, i think obama's talking out of his ass in his bone headed approach to this whole mess, and his attempt to go on a crusade against the banking industry. why doesn't he focus on monetary policy and how we've basically been shifting bubbles across asset classes since the early 90's? from the bond market to the emerging market to high tech to subprime mortgages and possibly to commodities and god knows what else in the future.

meanwhile bernanke gets another term? not sure he was that great in the first place.

and lawrence summers? don't even get me started on that guy and the job he did on the harvard endowment.

also slapping a corporate tax on america? or limiting the bonuses of banks. i mean last i checked, america was built on capitalism. now obama wants to slap the handcuffs on banks to gain popular votes? psssh come on...you think the geniuses on wallstreet are gonna sit there wait for obama to ass rape them? think again.

there's already word that goldman sachs and morgan stanley might simply "de-bank" themselves and go back to being pure ibanks. i'm sure others will follow and/or search out smarter ways around the whole mess. i mean honestly, obama's outta his mind thinking he can try to police the financial industry by playing hardball.

Ginetta · Answer

Not to get too into politics, but its not coincidence that this comes out right after Mass. is lost and the healthcare agenda looks to be in danger. I dont think this is going to get a whole lot of traction, as people are starting to care less and less about punitive damages and more and more about just getting the economy fixed.

As others have said, G and MS can "unbank" themselves, and this is still just a proposal.

As others have said, G and MS can "unbank" themselves, and this is still just a proposal.

3underscore · Answer

Most of the big banks don't make that much through Prop really. For MBAs, the odds of going to a Prop desk in a bank is nearly zero, ergo I expect no change for the MBAs.

NYCAnalyst · Answer

Where do they end up? Market-Marking?

3underscore · Answer

NYCAnalyst - in the most part, yes. Sales or market making - in the vast majority of cases that is what anyone on a bank trading floor does. Moving to a prop role involves showing that you can deal well with that - in certain ways it is more difficult (getting positions you would never want due to a client), in certain ways easier (less emotional attachment to a bad trade). Much prop trading is likely off the side of the desk, but even then is within what the desk could use as hedging products (index trades through signal models perhaps). Cutting down on that in many cases wouldn't make a large net difference, as I have seen more of those go bad than good.

Holding a proprietary position as hedging will always going to be fine - it will become a nightmare to follow, but ultimately it would be very similar to hedge accounting for IAS39 (FAS 133) which banks have had plenty time to get used to.

I really can't see why Bernanke shouldn't get a second term, and the seperation of monetary policy control within the Fed away from government interference is critical - getting back on monetary policy is a bad idea. The need for better regulation is obvious - not necessarily increased regulation, but almost certainly improved legislation as Wall Street has driven buses through the loose netting that Washington has in place.

Ginetta · Answer

As figured, dead in the water: https://online.wsj.com/article/SB1000142 ... Collection

britguy · Answer

yeah thanks ginetta. on re-reading it's clear that my OP was a pretty big overreaction to washington hyperbole. something to keep an eye on though.

3underscore · Answer

I'd rather prop trading be banned in banks than not be able to short stocks, which is fundamental for actually doing business and reducing risk.

britguy · Answer

noone's banning shorting though. naked shorting is controversial, but noone's gonna argue with short selling period. Or?

3underscore · Answer

How do you prove a short is naked (in fact, you technically can't have a naked short, as you have to cover on repo).

And, in a shape and form, the SEC has.

Obama bans proprietary trading at big banks!

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