In the six years since the financial crisis began, some commentators have wondered if promised reforms would ever be implemented. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203), passed by Congress in 2010, mandated new regulations on proprietary trading by federally-insured banks and required greater disclosure in derivatives transactions. Finally, on December 10, the Federal Reserve Board of Governors announced that five federal agencies (the FDIC, SEC, CFTC, Office of the Comptroller of the Currency, and the Federal Reserve) had adopted the “Volcker Rule.” The Volcker Rule, named for the former Fed chief who proposed it, prohibits federally-insured banks from engaging in short-term proprietary trading of securities, derivatives, and other financial instruments for their own account. The practice of proprietary trading is said to have caused conflicts of interest between some banks and their clients in the run-up to the crisis; certain banks have been accused of making proprietary bets against the same investments that they recommended to their clients as sound investments. The rule also imposes limits on banks’ investments in and relationships with hedge funds and private equity funds (although some activities are exempted). Banks will have until July 2015 to fully comply with the Rule.
Text of the Volcker Rule: http://www.federalreserve.gov/aboutthefed/files/volcker-rule-notice-20131210.pdf.
Press Releases from the Federal Reserve:
The New York Times: Finally, the Volcker Rule
Forbes: The Six Gaping Loopholes in the Controversial Volcker Rule
The Economist: The Volcker Rule: More Questions Than Answers.