Volcker Rule passes, but what is it? and How does it affect banks?

Volcker Rule Ushers in Era of Increased Oversight of Trades

  • Volcker Rule was just passed by U.S. regulators to prevent another bank financial crisis.
  • JP Morgan, Goldman Sachs and other industry allies support this Bill.
  • The idea of this Bill is to stop Prop trading, prop trading is when companies use their own money to invest in the stock market rather than their customers, which is very risky as JP Morgan lost $6.2 Billion of their own money in the London Whale loss.
  • The Volcker rule bans banks from trading to profit for their own accounts while allowing them to continue making markets for clients.
  • The main goal of this rule is to limit risky trades which is what Prop trading mostly is, due to this new bill banks must now provide qualitative analysis on future trades before making them to reduce risk.
  • The Fed gave banks a delay until July 21, 2015, to comply with the rule. Beginning June 30, 2014, banks with $50 billion in consolidated assets and liabilities must report quantitative information about their trading.
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