The bigger a commercial bank is, the stronger its ability to provide leverage for the market. This proposal extends the upper limit of 65,438+00% to other non-deposit market areas such as short-term market financing, which directly reduces the ability of banks to provide leverage.
Banks, including private equity funds and hedge funds, are prohibited from proprietary trading in order to ensure the safety of people's deposits and prevent taxpayers from "paying the bill" for Wall Street's investment mistakes by controlling the aggressive investment behavior of banking institutions. But behind this goal, it is to reduce the amount of funds in the market more directly and play the role of "deleveraging".
When the financial crisis occurs, the risks of proprietary trading of banks are concentrated on a large number of financial derivatives such as MBS, CDO, CDS, etc. These derivatives have leverage of dozens or even hundreds of times, which has caused great risks to the market. Typical examples are the risks brought to Citigroup by the off-balance sheet assets of Bear Stearns, Lehman Brothers and Citibank. It can be said that prohibiting proprietary trading means that the government forcibly "deleverages" the market on a large scale.
The global gold market cannot be ignored here. The gold market includes spot gold market and gold derivatives market. Gold short banks borrow gold reserves from the Federal Reserve or other central banks, sell them in the market, and then buy them back to the central bank at a low price, making profits through the price difference. In 2007, short gold positions held by JPMorgan Chase, HSBC and Deutsche Bank accounted for 90% of the market. On September 17, 2008, in just a few hours, due to JPMorgan Chase's huge short position in gold, the spot gold price in London rose by $87/oz, or 13%, which was the biggest increase in a single day since 1980, and that in the New York Mercantile Exchange was 6544.
If the bank reform prohibits the self-operated business of banks, it will undoubtedly lead to the liquidation of banks holding huge short positions in gold, and the price of gold will rise unimaginable. This is somewhat ironic.
The separate operation of banks in Volcker's Law is very similar to glass-steagall act in 1933. After the Great Depression in the United States, this bill strictly separated investment banking from commercial banking, reduced systemic risks, and played an important role in the smooth operation of the American financial market for more than half a century. 1999, the bill was abolished, and commercial banks began to fully set foot in investment banking and became universal banks again. These "too big to fail" banks are guaranteed by the government's default, and they are unscrupulously involved in high-leverage and high-risk businesses, obtaining high returns and bringing great risks to the government and taxpayers.
Although there is no trace of "deleveraging" on the surface, the transaction cost between investment banks and commercial banks will increase greatly due to separate operations, and the increase in financing cost itself means the decline in leverage.