Volcker Rule (2024)

FAQs

What is the Volcker Rule? ›

The Volcker rule generally prohibits banking entities from engaging in proprietary trading or investing in or sponsoring hedge funds or private equity funds.

Relaxation, 2020-present. On June 25, 2020, the Volcker Regulators relaxed part of the rules involving banks investing in venture capital and for derivative trading.

The Volcker Rule refers to a broad set of rules adopted under Dodd-Frank Title VI that attempts to reduce risk within banking institutions, stemming from mixing investment banking and commercial banking.

The Volcker Rule helps ensure that insured depository institutions or any company affiliated with one doesn't engage in proprietary trading. This helps protect consumers from losing money. After the financial crisis in 2008, Lehman Brothers evaporated after a series of bad bets.

(a) Prohibition. Except as otherwise provided in this subpart, a banking entity may not engage in proprietary trading. Proprietary trading means engaging as principal for the trading account of the banking entity in any purchase or sale of one or more financial instruments.

The Volcker Rule applies to “banking entities” – defined by statute to include FDIC-insured depository institutions, bank holding companies, savings and loan holding companies, other entities that control an FDIC-insured depository institution, and foreign banks conducting banking activities in the U.S. (referred to ...

During his tenure as chairman, Volcker was widely credited with having ended the high levels of inflation seen in the United States throughout the 1970s and early 1980s, with measures known as the Volcker shock. He previously served as the president of the Federal Reserve Bank of New York from 1975 to 1979.

The Volcker Rule generally restricts banking entities from engaging in proprietary trading and from owning, sponsoring, or having certain relationships with a hedge fund or private equity fund.

Ultimately, it took a crackdown by cigar-chomping Fed chairman Paul Volcker to break the cycle of rising prices and wages. Volcker slammed the brakes on the economy by raising interest rates to 20% — tough medicine to prove he was serious about getting inflation under control.

A bank may be excluded from the Volcker Rule if it does not have more than $10 billion in total consolidated assets and does not have total trading assets and liabilities of 5% or more of total consolidated assets.

Does Volcker Rule only apply to us? ›

The Volcker Rule does apply to every foreign entity that directly or indirectly maintains a bank branch or agency in the United States, or controls a commercial lending company.

Named after former Federal Reserve Chairman Paul Volcker, the Volcker Rule disallows short-term proprietary trading of securities, derivatives, commodity futures and options on these instruments for banks' own accounts under the premise that these activities do not benefit banks' customers.

The Volcker Rule is one of the more controversial pieces of legislation to emerge from the financial crisis. Attached to the Dodd-Frank Act, the rule was intended to limit banks' ability to make speculative investments that do not benefit their customers.

The Volcker rule limits two main types of activities by large institutional banks. Banks are prohibited from engaging in proprietary trading activities and from owning interest in covered funds, generally defined as hedge funds and private equity funds.

Institutions such as brokerage firms, investment banks, and hedge funds frequently have proprietary trading desks. However, there are restrictions against large banks engaging in prop trading, designed to limit the speculative investments that contributed the 2007-2008 financial crisis.

During his tenure as chairman, Volcker was widely credited with having ended the high levels of inflation seen in the United States throughout the 1970s and early 1980s, with measures known as the Volcker shock. He previously served as the president of the Federal Reserve Bank of New York from 1975 to 1979.

They include the following seven circ*mstances: (1) acting as an agent, broker, or custodian, (2) permitted organizing and offering, (3) permitted underwriting and market making, (4) investing in a fund organized by a banking entity, (5) risk-mitigating hedging activities, (6) activities and investments outside of the ...

Volcker slammed the brakes on the economy by raising interest rates to 20% — tough medicine to prove he was serious about getting inflation under control.