Tuesday, January 28, 2014

Quantum Mechanics and the Volcker Rule

Nearly 100 years ago, a great physicist surmised "if particles behave like waves, there must be a wave equation."  Next thing you knew, the world had the Schrodinger Equation of Quantum Mechanics.

Now the World of Banking has the Volcker Rule.  Regardless of your point of view, almost all would likely agree that US banks should have reduced risk once they shed the Volcker-prohibited activities.

Just as Schrodinger created the math to describe quantum wave functions, what we now need is for financial quants and regulators to create the models of economic and regulatory capital to show how much LESS CAPITAL banks should have post-Volcker implementation.

If the Volcker premise of risk reduction is correct, we should see the impact in bank capital models, right?!

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