NEW YORK ( TheStreet) -- We've known for a while that the proposed new restrictions on hedge fund and private equity investing known as the "Volcker Rule," would be tougher on Goldman Sachs ( GS) than any other large bank, but have we really considered the extent to which this is true? Assessing the impact of the restrictions is difficult. Citigroup analyst Keith Horowitz reckons Goldman has $29.1 billion invested as a so-called "principal"-- where it is acting in much the same way as a hedge fund or private equity firm would. That compares to $11.6 billion for Bank of America ( BAC), $7.3 billion for JPMorgan Chase ( JPM) and $8.1 billion for Morgan Stanley ( MS). In other words, Goldman's "principal" investments count for nearly three times the total of Bank of America, and about four times that of JPMorgan. The difference is even greater when you take into account that those institutions are significantly larger than Goldman. Under the proposed legislation before Congress, Goldman and other banks would need to cut their principal investment to no more than 3% of Tier 1 Capital -- a number regulators use to measure the strength of an institution to withstand big losses. Since Goldman's Tier 1 capital was $65 billion at the end of 2009, Goldman would have to cut its principal investing from $29.1 billion to less than $2 billion. By contrast, JPMorgan would merely need to bring its $7.3 billion investment down to $4 billion to account for the 3% of the $133 billion in Tier 1 capital it had at the end of 2009. Is there any way the Volcker rule might be good for Goldman? Well, one of the restrictions of the rule would prevent Goldman's executives from investing their own money in its proprietary funds. This eliminates an important conflict. For example, imagine a Goldman investment banker hears about a company that he or she thinks may be for sale at a relative bargain price. If that person has $5 million of their own money in Goldman's private equity fund, they might tell colleagues at the fund about the potential deal before telling, say, The Blackstone Group ( BX) or Kohlberg Kravis & Roberts. Today, if the investment does well, Goldman's private equity fund makes money, but it loses out on an advisory fee. In 12 years, after the proposed law would kick in, Goldman will lose the investment opportunity, but win the fee.
An advisory fee is typically worth far less than a home-run investment, and though some might argue Goldman would benefit in other ways, such as generally having more goodwill from its clients, it's hard to see how that would translate to the bottom line. The New York Times' Andrew Ross Sorkin wrote recently that Goldman's clients are sticking with it even now, though there is plenty of contrary evidence, such as a lawsuit against Goldman by an Australian hedge fund, or an e-mail from former Washington Mutual boss Kerry Killinger, who referred to hiring Goldman as "swimming with the sharks." One easy way to measure whether Goldman's clients are sticking with it is by looking at investment banking fee revenue. Goldman has earned $1.69 billion in global investment banking fee revenue so far this year, according to Dealogic, good for third place. JPMorgan has brought in the most fees, with $2.31 billion. The difference between the two is negligible when you consider than Goldman had $12.78 billion in revenues in the first quarter. More important to Goldman is that it is involved in enough deals to create all kinds of opportunities for itself. It is now apparently set to lose some of those opportunities. How much all of this matters is an open question. The fact that the Volcker rule may not take effect for 12 years really seems to turn the whole thing into a joke. Volcker himself is said to be unhappy with how much it has been watered down. But 12 years from now, assuming the legislation isn't watered down further before it passes, Goldman may have lost an edge. -- Written by Dan Freed in New York.