The conventional wisdom on the Volcker Rule is that it would hit trading-intensive firms the hardest.

A JPMorgan analyst last year estimated that the rule would reduce U.S. bank’s revenue by up to 46 percent. Most assume that Goldman Sachs would be among the hardest hit, as it has long been one of the most trading intensive. But at a conference covered by Reuters, CFO David Viniar suggests that his firm might benefit--at the expense of clients.

The basic line of thinking is that the new rules will constrain marketing making, which will hurt institutional investors who have made clear their view that stand to lose on the Volcker Rule. If banks like Goldman Sachs get more conservative, one effect might be that bid-ask spreads widen, reversing a historical trend. Wide spreads of course are good news for the broker, bad news for the client.

At the same time, Goldman Sachs could also demand more collateral from partners, and some business lines may be exited if the capital requirements necessary for adequate market making prove prohibitive. Tthat means capital used as reserves against the trading could be redeployed to more profitable lines.

It is quite possible, Viniar suggested, that Goldman Sachs could see its ROE rise from the current paltry 3.7 percent. Viniar presented a slide that “indicated that if Goldman were to exclude profits and losses from businesses affected by the Volcker rule from 2004 through 2011, the bank would have had the same average quarterly returns with less volatility.”

For more:
- here’s the Reuters article

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