Can we really determine what is customer-driven versus principal activities?
Chairman Volcker testified that “every banker I speak with knows very well what ‘proprietary trading’ means and implies.” He also pointed to an analysis of volume relative to customer relationships and of relative volatility of gains and losses, such as patterns of exceptionally large gains and losses. It is certainly true that regulators have long been making these determinations for banks and BHCs. The Office of the Comptroller of the Currency (OCC) lists examples of customer-driven activities in its list of “Activities Permissible for National Banks,” and the Federal Reserve lists certain types of customer activities and eligible proprietary trading for BHCs in its Regulation Y. Each regulator permits (and requires) proprietary hedging activities. These distinctions, however, were made in the context of a commercial banking business rather than in a traditional proprietary trading business. The devil here will be in the detail of the drafting being left to Secretary Geithner (and th
