Volcker rule to create grey area for regulators Jack Lew, US Treasury secretary The US "Volcker rule," which bans banks from proprietary trading, will leave a grey area for regulators to police as they see fit, according to a senior Treasury official. Almost four years since it was proposed by President Barack Obama, the new prohibition on banks trading for their own account is due to be approved by regulators next week after a protracted argument over how strict it should be. The senior Treasury official said that risk-taking such as the "London whale" derivatives trades, which saw JPMorgan Chase lose $6bn last year, would be banned. But the official said some trading would fall between such activity and the explicitly permitted business of "market making" - buying and selling stocks and bonds on clients" behalf. He said the rule itself would be quite short, leaving room for regulators" discretion. Banks have argued in presentations to the Treasury that the rule, named after former Federal Reserve chairman Paul Volcker, is already diminishing liquidity because banks are wary of holding large bond inventories for fear of being accused of buying to speculate. Less liquidity typically means higher costs for investors. Some Treasury officials have previously expressed the belief that there is some validity to the banks" arguments, according to people familiar with discussions between bankers and the government. But the senior Treasury official yesterday dismissed the idea that markets were already being hurt and said banks should not be refraining from any activity that could be considered market making. It is unclear whether the comments and the rule will reassure the industry, which is sceptical of the ability of regulators - or even banks themselves - to draw a line between banned and permitted activity. "If you want to be trading, you have to have a lawyer and a psychiatrist sitting next to you determining what was your intent every time you did something," said Jamie Dimon, chief executive of JPMorgan, last year. Separately, Jack Lew, the US Treasury secretary, warned that US financial reforms aimed at ending the problem of banks that are "too big to fail" would fall short unless international regulators held global banks to the same high standards. Mr Lew warned that the "failure to work out such arrangements now" to wind down international banks "could pose a significant future risk to our financial system." "We want a global race to the top," he said in a speech at the Pew Charitable Trusts. Let me be clear: we will press other jurisdictions to match our robust standards - including in Europe and across Asia. However, Michel Barnier, the EU's internal market commissioner, said European rules were "robust and often identical to those in the US. In some respects they are even tougher. Additional reporting by Camilla Hall in New York