Why Goldman Sachs Doesn't Care About the Volcker Rule | Where the Money Is - 12/3/13 | Summary and Q&A

TL;DR

The Volcker rule is set to be approved soon, but its impact on big banks is expected to be minimal. The number of banks in the US has been decreasing while deposits continue to rise.

Key Insights

• 😃 The impact of the Volcker rule on big banks is expected to be minimal, as they are already complying with its regulations.
• 😮 Changes in interstate banking laws have led to a decrease in the number of banks, while deposits continue to rise.
• 😃 Different factors, such as technology, marketing, and familiarity, contribute to why people choose big banks over credit unions.
• ✋ Bank of America and JP Morgan have accumulated higher legal expenses compared to Citigroup, raising concerns for their shareholders.

Transcript

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Questions & Answers

Q: What is the Volcker rule and how are banks preparing for its implementation?

The Volcker rule prohibits banks from proprietary trading and certain investments. Banks like Goldman Sachs are already managing their funds in consideration of the rule, such as winding down private equity and hedge fund investments.

Q: What caused the decrease in the number of banks in the US?

Changes in interstate banking laws allowed for the creation of big national banks, leading to more efficiency and consolidation in the banking industry.

Q: Are banks like Bank of America and Citigroup at risk due to their legal expenses?

Bank of America has the highest legal tab at $45 billion, while Wells Fargo has quietly accumulated over twice the legal fees and settlements as Citigroup. The impact on Citigroup shareholders remains uncertain.

Q: Is it a good idea to invest in American Capital Agency or consume expired milk?

It depends on personal risk tolerance, but investing in American Capital Agency may offer more potential gains than consuming expired milk.

Summary & Key Takeaways

• The Volcker rule is expected to be finalized soon, with regulations in place by July 2014. Banks like Goldman Sachs are already complying with the rule by winding down certain investments.

• The decrease in the number of banks is due to changes in interstate banking laws, which allowed for the creation of bigger, more efficient national banks. Deposits continue to rise while banks merge or close.

• JP Morgan and Goldman Sachs' capital plans have been cleared for review by the Fed, leading to expectations of increased dividends and buybacks from these banks.