The reform bill that was agreed upon by House and Senate conferees today is not likely to resolve what activities get split off from banks and how other specifics of its provisions get implemented, financial industry executives said Friday.

Many specifics in the bill are being left to interpretation by various regulatory bodies, noted Ajay Rajadhyaksha, head of U.S. Fixed Income & Securitized Product Strategy for Barclays Capital and Larry Kantor, the head of research at Barclays Capital.

In particular, it’s not clear how the bill’s version of the Volcker Rule, which wants to keep banks for trading in securities in their own accounts, will be implemented. Because it’s hard to separate when a bank is trading for its own account or to satisfy a customer trading for its account.

"I'll be honest with you," Kantor said. “We don't know ourselves how you separate it from what you do for clients, because every single transaction we do for a client, involves implicitly taking a position.”

If a client wants to buy a security from Barclays, he said, Barclays’ job is to sell it to them. If the client wants to sell, Barclays’ job is to buy.

In the case where, “we're buying and we add to our position [we] have to decide do we want to hedge that? Do we want to sell it to somebody? Do we want to keep it?’’ said Kantor. “Now is that proprietary? What does this mean, exactly?"

As the impact of the bill gets worked out, definitions will have to come. But, right now, Kantor said,"the answer to most of these questions is, I don't know."

Even with a new set of questions to answer, the Securities Industry and Financial Markets Association said the financial services industry “will begin to implement these changes.”

“Much of this new law should help to restore and maintain confidence in U.S. financial markets,’’ said SIFMA chief executive Tim Ryan. The confidence-builders, he said, include the establishment of a systemic risk regulator, a resolution authority for handling failing firms and a new federal fiduciary standard for retail investors.

“But this is a tough law that will also have profound effects on the operations and cost structure of most financial services companies and financial markets,’’ he said.

The Business Roundtable, which counts as its members the chief executives of large American corporations, said, however, it was “extremely disappointed by the conference committee’s final report,” which it said did not “ address the causes of the financial crisis.”

“The nearly 2,000-page bill was rushed to conclusion without due consideration of the consequences, intended and unintended, for U.S. global competitiveness, long-term sustainable economic growth and job creation,’’ said John J. Castellani, the president of Business Roundtable.

In particular, the Roundtable is concerned about provisions granting the Commodities Futures Trading Commission authority to impose margin requirements on buyers and sellers. This, it said, “will increase business risk and substantially raise costs for the more than 12,000 public companies that had nothing to do with the financial crisis.” The cost, in this case, could be 100,000 or more jobs, it estimated.

Throughout the bill, the restrictions on financial firms seemed to augur for reduced availability of credit, to help spur an economic expansion, said Barry Knapp, head of U.S. Equity Strategy at Barclays Capital in New York.

Who gets appointed head of the new Consumer Financial Protection Board is critical, he said.

“If they name someone who makes a lot of restrictive rules, you're not going to have an expansion of consumer credit,’’ he said.

In fact, “ I would have to say, based on everything that's gone on with these bills, as well as Basel III and what is to follow, none of this argues for an expansion of credit creation."

The latest round of reserve requirements being proposed in the third round of the Basel Accords will require, for instance, the 35 largest banks in America to set aside $1 trillion of additional working capital, to be considered safe, he said.


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