S&P estimated two years ago that the rule would slash earnings by $4 billion.
The report indicated that Goldman Sachs Group and Morgan Stanley, which were the two largest securities firms before becoming banks in 2008, could lose the most, as they take a larger percentage of revenue from trading than other lenders. S&P also said in the report that regulators are unlikely to draft the final version of the proposal until the end of the year, Bloomberg reports.
“In our view, less strict rules would have a limited impact on banks’ earnings and business positions, so it’s unlikely that we would take any rating actions as a result,” the report said. “Stricter rules could lead us to take negative rating actions on certain banks.”
Section 619 of the 2010 Dodd-Frank Act, commonly known as the Volcker Rule, prohibits banks from engaging in proprietary trading and limits the amount that such institutions can invest in private equity and hedge funds to three percent of Tier 1 capital, according to Bloomberg.
Proponents of the rule maintain that it could reduce risk to the financial system, while opponents claim that the rule would damage U.S. competitiveness. S&P said that restrictions on proprietary trading could limit risk and make banks safer.
“The implementation of the Volcker Rule could have favorable implications for the credit profiles of some of the largest U.S. banks, such as reducing trading portfolio risk,” S&P said, Bloomberg reports. “This risk mitigation could lessen revenue and earnings volatility, which we would view favorably.”