Will the Volcker Rule Finally End ‘Too Big to Fail’?
On Tuesday, after more than three years of delay and intense lobbying, the U.S. Federal Reserve, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the FDIC, and the Office of the Comptroller of the Currency are finally expected to finalize the language of the Volcker Rule.
The rule is named after Paul Volcker, who served as chair of the Fed for nearly 10 years (August 1979 to August 1987) under Presidents Jimmy Carter and Ronald Reagan. Volcker has earned a place in history as a brilliant economist and Wall Street watchdog, and during his tenure at the Fed, he is perhaps best remembered for curbing rampant inflation.
As chair of President Barack Obama’s Economic Recovery Advisory Board (February 2009 to February 2011), he is also remembered for the provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
In broad strokes (and in spirit), the Volcker Rule prohibits depository banks — those protected by the Federal Deposit Insurance Corporation — from risky proprietary trading, investing Tier 1 capital in private equity or hedge funds, and abusing derivatives for hedging purposes aimed only at increasing profit and not done in the interest of customers.