Volcker Rule about to be ToughenedBanker Resource
November 27, 2013 — 1,401 views
Legislators in Washington sat down to review and propose amendment to the Volcker rule to the Dodd Frank act. The rule which was intended to keep financial firms away from reckless speculation was in force for several years. The rule made several recommendations and required close monitoring of banks. However, lately several shortcomings have been identified in its operation and implementation. It has been proposed to make changes to fix those shortcomings in the future.
The original Volcker Rule
The original Volcker Rule was targeted at big banks like JP Morgan and Wells Fargo. It prohibited them from participating in hedge funds and other similar activities. In other words, one bank could not take up a large variety of trading activities. There had to be separate firms created for separate trading activities.
However, soon, many companies found loopholes in the law and started exploiting. Some companies would create spinoff firms and use them for trading and at the same time would take up all the profits for themselves. And other companies would setup offshore accounts that were away from the reach of US law enforcement and would use them for embezzling of funds.
Soon many lawmakers became aware of these activities and started to look for ways to stop them. Most of them agreed on a need to make amendments to the law and update the law to reflect the current reality.
The new Volcker Rule
The new Volcker Rule will require strict disclosure of a company and its finances. It will require a company to make public all its financial dealings and also that of its subsidiaries. This will hopefully create more accountability and transparency.
The new Volcker Rule will be applicable to all companies that operate in the banking sector. Those companies that fail to comply with the rule will be heavily penalized by the government. All companies that do not comply with the rule will have to pay a heavy fine.
It is hoped that the new Volcker Rule will bring some stability and respectability to the financial sector which in recent years has seen its fair share of scandals and controversies. The effort to make banks responsible for their activities has been in the works for a long time. Only now is it being implemented into law. It is predicted that the law could take effect in less than a year.