QuoteOriginally posted by: Gmike2000all hedging is prop trading at the same time. if a client trades some exotic option that requires dynamic hedging, there is no way you can statically replicate it, and let's not even talk about trading costs.even simple things like callable libor range accruals require you to carry digital risk on high and illiquid strikes on your book. there is simply no way to be "hedged" perfectly, so you have to make a proprietary decision on how much of the risk to hedge and when to rebalance. certain customer markets (cms for example) are always one sided and require the desk to absorb the risk in a non-perfect way.volcker is a complete idiot for thinking he can actually regulate this, and that it is to be regulated to begin with. all desks are prop desks. every tiny loan a bank grants is a prop trade. every normal business out there, think pump manufacturer, that buys metals to sell a finished product is prop trading in its own particular way.every homeowner that buys a house and "securitizes" his future income, is a big overleveraged prop trader. i am going to stop now...this shit is making me very upset.With all due respect, I strongly disagree.Commercial banks that grant loans have restrictions on how much they can lend. Homeowners have restrictions on the size/value of house they can buy. Moreover, both categories of punters can fail, if their prop trades go sour.Large banks that enjoy a government backstop should either be broken up or, failing that, discouraged from risky activities. Personally, even though I benefit from all the balance sheet large banks offer me, I'd rather give it up than be short the blowup option again. As to how to implement this, I suppose it has to be arbitrary, to a degree, but it doesn't mean it shouldn't be done.