By Halah Touryalai, Forbes staff

Last month Goldman Sachs (GS) posted its second ever quarterly loss as a public company but that’s not management’s biggest concern.

The firm says Europe is its top focus right now for both risks and opportunities.

Goldman’s CFO David Viniar and securities division co-heads Pablo Salame and David Heller sat with Nomura analyst Glenn Schorr and told him the European debt and political problems are weighing on capital markets activity and keeping the firm very cautious as a result.

"Only upside here is that, as large European investment banks exit, slim down, or restructure businesses, Goldman is gaining some market share and expanding its client footprint," Schorr, who has a buy on the firm, wrote in a note Monday.

Further, more uncertainty exists for Goldman and its rivals around the Volcker Rule. An official draft of the rule, which prohibits banks from the profitable business of trading with their own money, was released last month, and it seems to be leaving a lot of unanswered questions. Literally.

The draft version of the Volcker Rule, named after former Federal Reserve Chairman Paul Volcker, was roughly 300 pages and posed more than 350 questions. That’s leaving firms like Goldman scratching their heads about what constitutes as prohibited and permitted activity.

"Not surprisingly, the Volcker Rule is a key concern, but there are still more questions than answers about the final rules. The impact on market liquidity and bid-offer spreads are the biggest uncertain outcomes and we think the buy side is beginning to get more focused on potential impacts -- so the comment period is critical," Schorr writes.

It’s no wonder why Goldman is paying close attention.

In a note last month, Schorr said the Volcker Rule would impact investment banking giant Goldman Sachs the most, followed by Morgan Stanley (MS). The two firms derive 48% and 27% of their total consolidated revenues from principal transactions respectively. Schorr says Volcker will pact 20% of Goldman trading revenue. Meanwhile Bank of America (BAC) and JPMorgan Chase (JPM) see about 9% and 8% of their total consolidated revenue come from such transactions. Citigroup (C) will be the least hit with just 5% of its total revenue at stake.

According to the Office of the Comptroller of the Currency banks’ capital costs would reach $917 million as result of the Volcker Rule.

The rule, while still being hammered out, is getting some more support recently amid turmoil at MF Global, the brokerage firm that went belly up in a matter of days. As my collegue Agustino Fontevecchia’s pointed out last week, many have come out to call for stricter enforcement of the Volcker Rule amid MF Global’s massive bankruptcy.

Securities attorney Andrew Stoltmann told him, "It’s been three years since Lehman Brothers and I think regulators have been caught with their pants down, they are wiping their brow in relief that this wasn’t Morgan Stanley or Bank of America’s Merrill Lynch."

Bearish economist Nouriel Roubini thinks MF Global’s fate could be felt by bigger firms like Goldman. 

"What happened to MF Global could happen to Jefferies, Barclays, Goldman Sachs & Morgan Stanley. Leverage & maturity mismatch can lead to runs," Roubini tweeted Monday.

For investors wondering why Goldman hasn’t drastically changed its business model to reflect the changing business environment managment, Schorr says it needs more clarity before making any big moves.

"GS has not capitulated on its business model or the way it does business. Management thinks the current capital markets weakness is more cyclical than secular. If management thought this same environment would be here for 2 more years (economic or regulatory), GS would likely be a lot smaller. Investors question why there has been no drastic change, but management needs more regulatory clarity. Management is frustrated with low ROE/ROA along with investors, but needs clarity on Europe and regulation before they can fully adapt," Schorr says.

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