Regulators Are about to Vote on Volcker RuleBanker Resource
December 4, 2013 — 1,416 views
The controversial Volcker Rule which will ban proprietary trading by US financial institutions will soon be put to vote by regulators. The Rule which was in the making for a long time is being considered necessary in the wake of the financial collapse, which was blamed on the financial sector by many.
The Rule will clearly set out what a financial institution such as a bank can or cannot do. Most importantly, the Rule will make it impossible for financial institutions to participate in proprietary trading. Proprietary trading is a form of trading in which banks can buy or sell complex financial instruments whose losses they do not need to suffer.
Proprietary trading was criticized by several people for being risky like gambling and for carrying fewer safeguards for the owners of the capital. It is claimed that the crash of 2008 was largely caused by unbridled optimism and unrestrained use of proprietary trading by the banks.
Overview of Regulators
In the present case, the concerned regulators are the Federal Reserve, the Securities and Exchange Commission and the comptroller of currency. All of them are major stakeholders in the current debate over proprietary trading.
The key people involved in the case are Jack Lew, who is the treasury secretary and Paul Volcker, the Federal Reserve governor after whom the rule is named. There are several other people who are also involved in the discussions. The result of the discussions was a modification of the Volcker Rule to prevent banks from proprietary trading.
The Position of the Banks
Many of the banks were quite naturally opposed to the suggestions. They are unwilling to lose a significant source of profit for their firms. They have claimed that the proposed rule could hurt their bottom line and make them unprofitable.
Many banks have lobbied against the rule but so far they have been unsuccessful. For the time being, it appears that the Volcker Rule will become law and proprietary trading by big banks will finally come to an end.
The vote on the Volcker Rule is still pending and could take some more time. However, the outcome is most likely going to be in favor of the regulators and against the interest of the bankers. This is has been described as being necessary by many people who had identified proprietary trading as the key reason behind the economic collapse of 2008.