US regulators have accepted the controversial Volcker Rule to discourage excessive risk-taking by banks and other financial institutions.
It is now five years since the historic financial collapse. After much deliberation — too much, according to some — regulators finally approved a version of the bill which is said to have much tougher wording than many banks had been hoping for. Astonishingly, more than 400 new pieces of legislation have been approved under the 2010 Dodd Frank Act.
The Volcker Rule is widely regarded as the centerpiece of the most extensive change to financial regulation since the Great Depression in the 1930s and is the biggest shake up of wealth management in living memory.
The Rule will govern the way banks structure compensation and specify the types of businesses they can engage in. The aim is to discourage employees from making “risky” trades, so much a feature of the recent financial crash. It comes into force in 2015.
Banks will be banned from all “proprietary trading”, whereby they trade their own funds, and there will be restrictions on the amount they can invest in certain risk-taking institutions, especially hedge funds.
The reforms have been met with dismay by US banks, who have lobbied unsuccessfully to have the wording watered down.