CFOs express their principal concerns on regulation and prop trading
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CFOs express their principal concerns on regulation and prop trading

The chief financial officer of one of the world’s largest banks pauses in his run-through of the manifold uncertainties that still cloud the outlook for its US businesses, following the signing into law in July of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or "reg reform" as the CFO, and pretty much everyone else in the industry, calls it.

Rather than list the many unknowns, the CFO says that it’s much easier to itemize the few certainties: the hard limit of 3% of bank capital and 3% of any given fund that banks can invest in private equity vehicles; and the strict limitation on walled-off, segregated proprietary trading.

But even here the CFO is anxious over the possibility that market-making principal positions, built up in expectation of customer orders that don’t quickly materialize and so held as inventory for longer than first intended, might become classified as proprietary trading.

"We certainly don’t think of those as prop positions. And the regulators know full well that they are not."

In the months that followed the announcement of the so-called Volcker Rule, banks fell over themselves to show how little they depended on proprietary trading to boost their earnings.

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