NEW YORK, NY--(Marketwire - Oct 12, 2011) - Yesterday Bank regulators introduced the controversial "Volcker rule" -- a measure that could cost big banks billions of dollars and force them to stick with a wide variety of trades for at least two months. The rule would both limit banks from investing in hedge funds and ban proprietary trading, which is a major profit center where banks trade for their own benefit rather than for clients. The Bedford Report examines the outlook for companies in the Financial Sector and provides equity research on Citigroup, Inc. (NYSE: [ C ]) and The Goldman Sachs Group, Inc. (NYSE: [ GS ]). Access to the full company reports can be found at:

[ www.bedfordreport.com/C ]
[ www.bedfordreport.com/GS ]

The limits on banks' activities were included in a provision of the Dodd-Frank law named for former Federal Reserve Chairman Paul Volcker. During the debate over the financial law, Volcker argued that excessive risk-taking in banks' proprietary trading businesses could threaten the overall financial system. The rule has already has triggered major changes at large US banks. Several institutions shut down trading desks that made bets with the firm's own capital. Many traders moved to smaller firms that aren't subject to the rule.

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According to Reuters, The idea behind the rule is to prevent banks that enjoy some sort of government safety net, such as deposit insurance on customer accounts or access to Fed money, from using that backstop to make money for themselves. Dwight Smith, a partner at Morrison & Foerster LLP, says that at a minimum, the proposed rule would increase costs and discourage firms from making markets in securities.

Regulators are giving the public until January 13, 2012, to comment on the rule. That is more time than expected, and could result in more pressure to change elements of the rule.

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