Bloomberg reports that Paul Volcker, the former Fed chairman, is unhappy with his eponymous rule. He had in mind a simple idea to prevent commercial banks from owning and operating hedge funds (hedge funds news) and private equity funds (private equity news).

The idea was to curb risky trading from institutions that took in federally insured deposits. A lot of people assumed that divestment was inevitable. But the industry has successfully watered down the rule. The rules would go into effect in 2012, but compliance would not be required for two more years. The law also includes a 3-year extension--another five years for "illiquid" funds, such as private equity or real estate.

The law also allows banks to invest up to 3 percent of their Tier 1 capital in alternatives. Whether that will reduce risk in the system is up for debate. In any case, it will be many years before all this will really happen.

You can bet the banks lobbyists will be working hard over the next 5 to 10 years--beyond the glare of the media--to modify the rules to their liking. The Volcker Rule may never truly go into effect if future efforts are successful. 

For more:
- here's an article on Paul Volcker

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