The proposed loosening of a U.S. rule that bars banks from risky stock transactions could lower compliance-related costs for some of Canada’s big financial institutions – particularly those with a significant presence south of the border – but they’re unlikely to dive back into proprietary trading.

Royal Bank of Canada chief executive Dave McKay weighed in on the ongoing discussions in the U.S. about the Volcker Rule during a conference call Aug. 22 to discuss the bank’s third-quarter earnings. The rule was a response to the global financial crisis and it restricts banks from speculative trading with their own funds.

Under the rule, which was implemented by the Democrats in 2013, banks are allowed to buy and sell securities to boost liquidity in the markets and to execute client orders. The onus is on banks to prove that certain kinds of trades are not proprietary. The Republicans are looking to claw back some aspects of the legislation to reduce that burden.

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Mr. McKay called the Volcker Rule complicated and said complying with it can lead to significant expenses.

"Hopefully, we’re going to get some relief from that,” Mr. McKay said during the earnings call. But, he added, "I don’t think we’d go all the way back to prop trading.”

Canadian Imperial Bank of Commerce analyst Robert Sedran said all of Canada’s big banks have been building their franchises around servicing their clients, rather than aggressively trading with their own funds.

"While they would all welcome the opportunity to dial back some of the compliance burden placed on them since the global financial crisis, we are unconvinced that any of them would move aggressively back into proprietary businesses,” Mr. Sedran said in an e-mail.

One of the reasons, according to National Bank chief executive Louis Vachon, is that the market doesn’t reward earnings generated by banks trading with their own funds.

National Bank has a small presence in the U.S., where the Volcker Rule is in effect, and its Canadian operations are not subject to Volcker. But Canada’s sixth-biggest bank has been moving away from proprietary trading anyway over the past four or five years – today, 98 per cent of its trading activities are client-driven, Mr. Vachon said.

“If we saw some market opportunities we could possibly increase prop trading a little bit more," Mr. Vachon said, but added the caveat, “within limits.”

“It’s not the type of earnings that the Street is looking for," Mr. Vachon explained.

That’s because a strong quarter in the prop trading business might not be repeatable, said Jim Shanahan, an analyst at Edward Jones & Co.

He added that proprietary trading is classified as a risky business, which means banks that engage in it are required to hold one dollar of capital for every dollar invested.

“From a capital standpoint it’s very punitive," Mr. Shanahan said. “There are more effective ways to leverage capital in traditional banking that can achieve similar or higher returns with lower risk.”