The Volcker Rule
Posted by benarmstrong on 1/25/2010 4:11:06 PM.
This policy was first proposed by President Barack Obama, The White House.
Level of Government: National
Status: Proposed

Abstract
Background:
In a Press Conference on January 21, 2010, President Obama proposed an amendment to the financial overhaul package that has passed the House and is currently under review in the Senate. He drew on the advice of Paul Volcker, the former Chairman of the Federal Reserve, who has proposed that Congress re-separate commercial banking and investment banking.
Purpose:
The new rule would seek to prevent excessive risk-taking in the financial sector that jeopardizes public funds. The rule would also seek to eliminate financial institutions that trade for profit while maintaining a commercial banking operation that the FDIC endorses.
Plans:
The Volcker rule would prevent commercial banks from owning, investing in, or sponsoring “hedge funds, private equity funds, or proprietary trading operations.” While banks are open to “trade for profit,” public money will not back those trades. The Obama Administration will also support a cap on the liabilities that banks can hold, but the details of this proposal are unclear.
 
Resources:
The Obama administration proposed the Volcker Rule as an amendment to the Wall Street Reform and Consumer Protection Act of 2009. For the amendment to become law, it will need to be included in a reconciled bill.

Policy Details
The Volcker Rule would prohibit commercial banks from trading for a profit as a hedge fund or private equity fund. The government seeks to institute the prohibition in order to reduce the size of individual financial institutions, and the relative risk that the government bears as a result of banks’ poor decisions.
 
Related Links
Press Release announcing the Volcker Rule: The White House released this statement describing what the Volcker Rule will entail.
'Volcker rule' takes banks by surprise (FT): This Financial Times article describes the political reverberations that the Obama administration announcement induced.

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