Volcker Rule Essay

The Volcker Rule, named after the former chairman of the United States Federal Reserve Paul Volcker, was first publicly discussed in January 2010. President Obama had proposed the Volcker Rule as an additional ruling to the Dodd-Frank Wall Street Reform and Consumer Protection Act, a bill that was at the time already under consideration by Congress. The Dodd-Frank Wall Street Reform and Consumer Protection Act, also known as the Dodd-Frank Act, was projected to help further promote and regulate financial stability of the United States’ economy, especially during the Great Recession, which officially lasted from 2008 to 2010. The general purpose of this Act is to regulate the financial regulatory system by avoiding any excessive or unnecessary risk-taking by large, influential banks, which is one of the significant causations that initially triggered the financial crisis. One crucial piece of this Act is the Volcker Rule, as it seeks to financial regulators to reform the ways banks can invest and regulate trading in the markets. The Volcker Rule is intended to greatly reduce risks within the banking industry by setting a restriction to trading. It limits the way banks invest their money within “speculating” markets, in which are not related to or benefit their customers. The more specific banking entities the Volcker Rule emphasizes on prohibiting any investments, ownership, or sponsorship of hedge funds, private equity funds, as well as, any “proprietary” trading. Additionally, it generally prevents financial institutions from using any of the bank’s money, which is insured by the FDIC, to manage any private equity funds and hedge funds.

There were many factors that triggered the financial crisis in 2008, with one of the main ca...

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...is loophole in the ruling coincides with influential commercial and investment bank’s restriction of bets, as financial analysts state that it would remove liquidity from the industry. As mentioned earlier, when the regulations were implemented, the bankers were not making as much revenue with their investments as they had hoped, resulting in an increase in bank fees and also, thereby driving up costs of equities and bonds.

The Volcker Rule has caused much debate since its official implementation in 2010. It was designed to reduce risk in banking activities and trades. It has a solid foundation, deriving from the Glass-Steagall Act and creating a substance for the Dodd-Frank Act. There are various benefits and negatives of the implementation of the Volcker Rule, but only time will tell to see if it has effectively helped the economy prevent another financial crisis.