“There is not . . . a rationale for public funds protecting and supporting essentially proprietary and speculative activities.” Last weekend, these words by former Federal Reserve chairman Paul Volcker – the basis of the so-called Volcker Rule – enjoyed the support of no less than five ex-Treasury secretaries. All agree that taxpayers should not provide a backstop for speculation. But it is a tricky distinction: almost everything a bank does is a punt.
Should government-insured deposits, for example, underpin Citi's desire to expand willy-nilly across Asia? Sure the region is hot, but making money in China, say, almost defines speculation. Case studies are littered with disastrous international forays: Australian banks into the UK; European investment banks on Wall Street; Japanese banks almost anywhere. Compared with these disasters, proprietary trading losses are rounding errors.
Banks are capable of wanton speculation at home, too. Much to blame for the current crisis was the bet that house prices would rise forever. Massive sums are also regularly committed to building businesses with odds-defying chances of success: HSBC and Bank of America's past attempts to get scale in investment banking, for example. Finally, does Mr Volcker intend to ban trading desks but allow mergers and acquisitions – perhaps the most speculative and value-destroying banking activity of them all? The almost-$100bn purchase of ABN Amro in 2007 wiped out two of the world's biggest banks in one go.