Volcker Rule

The Volcker Rule refers to § 619 (12 U.S.C. § 1851) part of the Dodd–Frank Wall Street Reform and Consumer Protection Act, originally proposed by American economist and former United States Federal Reserve Chairman Paul Volcker to restrict United States banks from making certain kinds of speculative investments that do not benefit their customers. Volcker argued that such speculative activity played a key role in the financial crisis of 2007–2010. The rule is often referred to as a ban on proprietary trading by commercial banks, whereby deposits are used to trade on the bank's own accounts, although a number of exceptions to this ban were included in the Dodd-Frank law. The rule's provisions were scheduled to be implemented as a part of Dodd-Frank on July 21, 2010, with preceding ramifications, but were delayed. On December 10, 2013, the necessary agencies approved regulations implementing the rule, which were scheduled to go into effect April 1, 2014. On January 14, 2014, after a lawsuit by community banks over provisions concerning specialized securities, revised final regulations were adopted. The rule came into effect on July 21, 2015. On August 11, 2016, several large banks requested a 5-year delay to exit illiquid investments.

Volcker was appointed by President Barack Obama as the chair of the President's Economic Recovery Advisory Board on February 6, 2009. President Obama created the board to advise the Obama Administration on economic recovery matters. Volcker argued vigorously that since a functioning commercial banking system is essential to the stability of the entire financial system, for banks to engage in high-risk speculation created an unacceptable level of systemic risk. He also argued that the vast increase in the use of derivatives, designed to mitigate risk in the system, had produced exactly the opposite effect.

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