In retrospect, the banks had a pretty sound strategy with Dodd-Frank: fight it during the legislative process, but not too hard, allowing lawmakers to think they’ve accomplished something. Then, during implementation, bend the regulatory apparatus to your will, gutting the law before having to follow it. That has been extremely successful, especially because Dodd-Frank wasn’t really a law so much as a promise to write a law later.

The latest victim of the finance lobby’s efforts on Dodd-Frank is the Volcker rule.

Banks could be allowed to continue making risky bets with their own capital, according to a draft version of the so-called Volcker rule that dilutes the provision’s original ban on “proprietary trading.”

At issue is how regulators and banks define “hedging,” or trades designed to offset risk taken by a bank, usually on behalf of customers.

Basically, the banks successfully got the regulators to define “hedging” so broadly that virtually any proprietary trade could be seen as a hedge.

The Financial Times report on this says that commodity trading, spot currency trading, securities lending, repurchase agreements and some securitizations would be exempted from the ban on proprietary trading, along with exemptions for “liquidity management.” The sum total of these exemptions is that there’s no effective ban on prop trading at all in the rule.

Americans for Financial Reform, in their statement, links this to the news of the “rogue trader” at UBS:

The Volcker Rule is a crucial part of the Dodd-Frank Act. It is perhaps the clearest attempt to change the culture of our major banks to focus on the needs of their customers, rather than short-term returns driven by irresponsible risk-taking and highlighted by conflicts of interest. This is precisely the kind of “casino” culture that has once again left a major global bank (UBS) with large and unexpected losses. The Volcker Rule statute already contains tailored exemptions for standard capital market activities such as hedging and market making. These exemptions may in and of themselves be challenging for regulators to police.

The UBS case emphasizes how investment banks shouldn’t be trading with depositor funds, which is the Glass-Steagall Act to which the Volcker rule already was a weaker substitute. Now it’s a non-existent substitute.

Bartlett Naylor, Financial Policy Advocate at Public Citizen’s Congress Watch Division, says in a statement, “Public Citizen believes that drilling holes in the Wall Street reform law designed to prevent banks from high-risk trading would erode the ability of regulators to prevent the kind of excesses that led to the financial crash that erupted three years ago this month. Creating a haven where banks can trade without government oversight invites hazard.”

After the next financial crash, perhaps we’ll have lawmakers and regulators willing to actually stop the casino on Wall Street. We don’t right now.