[Photo of Paul Volcker]

by Howard Haykin

So, the Trump administration released a report that recommends a dialing back of banking rules. To the surprise of some, the report did not seek to eliminate Dodd-Frank’s Volcker Rule, which forbids proprietary trading at big banks. And it's interesting to note that the release came one business day after the Department of Labor’s fiduciary rule for retirement advisers went into effect (Friday, 6/9). All in all, a mixed bag that disappoints some people on both sides of the aisle.

BloombergView columnist Matt Levine offers logical rationale for why things went down as they did.

• Like it or not, there was significant support for provisions of the rules that addressed public concerns:

►  retirement brokers were too conflicted, and their commission-based economic model encouraged them to recommend bad expensive products that paid them kickbacks.
►  banks had become too risk-loving, and they were dominated by traders who got outsized rewards for taking on big risks

• Banks and brokerage firms had already changed their business models in response to the rules:

►  Most brokerage firms have changed their business models largely away from commission-based compensation.
►  Big banks have largely transitioned away from proprietary trading, though some indications of prop trading appear now and then.

• While no one in the Trump administration seems to have wanted the rule, this administration failed to appoint senior officials to the Labor Department who might have been capable of unwinding a major regulation so close to its implementation.

• Eventually these rules are can be repealed or their overly restrictive provisions can be dialed down - though that may be more easily said than done, for the following reasons:

►  Both rules are aimed at changing the culture of the industries that they cover – and this appears to have been happened at brokerage firms and big banks.
►  The longer these financial institutions operate within the bounds of such new cultures, the harder it will be for them to revert to the old business models. 

Buckle up - it looks like we're in for a bumpy ride!