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November 26, 2013

How Regulators Will Toughen the Volcker Rule

After more than three years, 18,000 comments and one whale of a scandal, regulators are closing in on a final Volcker Rule that is expected to be tougher than its first draft.

The controversial proprietary trading ban, enacted in the Dodd-Frank Act, has proved to be one of the financial reform law’s most challenging provisions to implement, forcing five regulators to work together in a lengthy process that has frustrated everyone involved. While the concept of the provision is easy to understand — forcing commercial banks to stop taking risky bets with U.S. taxpayers’ funds — the specifics have spurred confusion and discord.

“‘We are trying to be faithful to the intent of this rule, which is to eliminate short-term financial speculation in institutions that enjoy the protection of the safety net,’ said Janet Yellen, President Obama’s nominee to succeed Federal Reserve Board Chairman Ben Bernanke, during her confirmation hearing on Nov. 14. ‘The devil here is in the details.’

The specifics of a final rule are a closely guarded secret, but regulators are expected to strengthen the provision in an effort to ensure it would help avoid multibillion dollar trading losses like JPMorgan Chase & Co.’s “London Whale” episode, while also offering greater flexibility to allow banks to engage in market making activities. (The agencies have not yet scheduled a meeting to vote and release the final rule.)”

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Read full American Banker article here

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