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Volcker Rule: Why banks can't hold crypto


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Hey

@JoelKatz

Volcker rule: Prevents banks from holding positions deemed speculative, prevents banks from prop. trading, and making bad bets. But what happens when the #Volcker Rule is tweaked to allow banks to hold (not trade) speculative 'crypto' positions ($XRP) to help streamline their business and make them more efficient? Speculative trades are held in the trading book, what if XRP was held in the banking books by financial institutions. 

#ODL and #XCurrent = is the plumbing, and XRP is the liquid that flows through it between financial insitutions to help them settle transactions faster - it helps financial institutions stay liquid by eliminating the need to lock liquid cash reserves in domestic and foreign FIs. If FIs hold XRP, then what happens to the price of XRP? Is there enough XRP for all financial instituions to hold as a commodity in their book? What happens when there just isn't enough XRP for FI's to hold, what happens to the value of XRP?  Inorder for any of this to happen the Volcker Rule needs to be tweaked. 

This only works if XRP is classified as a commodity and not a security

 

BTW: Trading books hold all tradeable financial assets of a bank  and the banking book refers to assets on a bank's balance sheet that are expected to be held to maturity. 

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5 hours ago, pnsh said:

If FIs hold XRP, then what happens to the price of XRP? Is there enough XRP for all financial instituions to hold as a commodity in their book? What happens when there just isn't enough XRP for FI's to hold, what happens to the value of XRP?  Inorder for any of this to happen the Volcker Rule needs to be tweaked. 

This only works if XRP is classified as a commodity and not a security

Ripple has said numerous times that they don't believe XRP is a security. I doubt David would be able to say anything differently/new about this. But that was not really your question.

Keep in mind that not all FIs need to hold XRP (I don't recall the correct word for it, something like "multi-hop") and that the quantity could be limited/none in case an FI has minor cross-currency flows (in which case they could use a service from another company). With multi-hopping I mean that 1 FI could provide the currency exchange through XRP as a service without the 2 ends having to touch XRP nor RippleNet. I believe that the key is having lots of FIs holding XRP (so rather 10 000 having 10 000 XRP than 10 having 10 000 000 XRP). That would drive demand between those FIs and push price. Otherwise XRP will be concentrated and liquidity needs will be easily fulfilled through these big holders (although they would also have to buy XRP to keep their stack).

XRP would in first instance only be relevant (as in utility) to those being connected to RippleNet as I doubt a lot of FIs will just reinvent the wheel and build something around the XRP ledger to do crossborder payments. So the demand for XRP is probably not as high that all of it would be allocated to FIs, ... (on the positive side only the XRP that's on the order books is available on the market). And if all XRP is allocated I don't see why that would mean "there's not enough". FIs still will need to do business and will have a price (be it higher) for which they will happily sell XRP to you. Not everyone wants to buy XRP at 18 cents and sell at 589$ so there's a continuous buy and sell points for each of the holders.

Long story short: I don't see immediately how we would come to a situation that there "won't be enough XRP" (it's not like there are more FIs than there are XRP). Different holders want to buy and sell at different points so to me I'd say it will stay liquid unless either prices soar continuously and nobody sells XRP anymore (they will in the end because everybody knows that it can't keep going up) and liquidity dries up (which sounds extremely unlikely) or the volatility gets so bad resulting in a lower demand because you don't know if you'll be able to sell for a reasonable price.

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The Volcker 2.0 rule takes effect from 1st January 2020. 

 "But the proposal would make it easier to trade for purposes of what’s known as market-making — the steady stream of securities that banks buy, sell and hold as middlemen. In one of the biggest changes, banks will no longer be assumed to be engaging in banned trades when they conduct short-term transactions. The so-called rebuttable presumption was part of what Wall Street hated most about the original rule."

https://www.bloomberg.com/quicktake/the-volcker-rule

I'm not sure if this will allow Moneygram and others to hold xrp but it looks like a step in the right direction.

 

 

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1 hour ago, swift_post said:

The Volcker 2.0 rule takes effect from 1st January 2020. 

 "But the proposal would make it easier to trade for purposes of what’s known as market-making — the steady stream of securities that banks buy, sell and hold as middlemen. In one of the biggest changes, banks will no longer be assumed to be engaging in banned trades when they conduct short-term transactions. The so-called rebuttable presumption was part of what Wall Street hated most about the original rule."

https://www.bloomberg.com/quicktake/the-volcker-rule

I'm not sure if this will allow Moneygram and others to hold xrp but it looks like a step in the right direction.

 

 

One ony has to read the pdf in full to see these exemptions and exclusions. It does away with a lot of the old restrictions, and modifies definitions upside and down.

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191008a.htm

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