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Spring 2013

ISSN 0890-913X

Volume 28, Number 2

Categories: Spring 2013 | Economics

What Is the Likely Impact of the Volcker Rule on Markets, Businesses, Investors, and Job Creation?

James R. Barth, Auburn University

Donald McCarthy, Econ One

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TheJournalofPrivateEnterprise28(2),2013,63–74WhatIstheLikelyImpactoftheVolckerRuleonMarkets,Businesses,Investors,andJobCreation?JamesR.Barth*AuburnUniversityMilkenInstituteDonaldMcCarthyEconOneAbstractTheVolckerRuleprohibitsbankingentitiesfromengaginginproprietarytradingactivitieswiththeintentiontocurtailexcessiverisksforbankingentitiesandtolimitconflictsofinterest.However,thissectionoftheDodd-FrankActisbasedonafalsepremisebecauseahighproportionoflargeindividualtradinglosseshavehistoricallyoccurredatnon-banks.Thesenon-banklossestendtobethosemostthreateningtofinancialstability.TheVolckerRulemayhavetheunintendedconsequenceofshiftingrisk-takingtoless-regulatedpartsofthefinancialsystemthatarelessresilientshouldlossesarise.JELCodes:G1,G18,G2,G21,G28,G24Keywords:Volckerrule;Proprietarytrading;Tradinglosses;Banking;Dodd-FrankActI.IntroductionInJuly2010,theDodd–FrankWallStreetReformandConsumerProtectionActbecamelaw.Itsstatedpurposeistopromoteawellfunctioningfinancialsystem.Inthisregard,animportantsection,referredtoastheVolckerRule,prohibitsbankingentitiesfromengaginginproprietarytradingactivitiesandlimitstheirabilitytoinvestin,orhavecertainrelationships,withhedgefundsandprivateequityfunds.Certainactivitiesareexemptedfromtheseprohibitionssubjecttoprudentialbackstopprovisions.Therule’spurposeistoprohibitactivitiesthatcouldcreateexcessiverisksforbankingentitiesandconflictsofinterest.*ThispaperisbasedonJ.Barth’stestimonybeforetheUnitedStateHouseofRepresentativesCommitteeonFinancialServicesonDecember13,2012.63

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Metadata [hide]

Title	What Is the Likely Impact of the Volcker Rule on Markets, Businesses, Investors, and Job Creation?
Authors/Creators:	James R. Barth, Auburn University Donald McCarthy, Econ One
Year:	2013
Volume:	28
Number:	2
Pages:	63 - 74
Publisher:	The Association of Private Enterprise Education
ISSN:	0890-913X
Document Type:	Articles
Keywords:	Volcker rule, Proprietary trading, Trading losses, Dodd-Frank Act, Banking, Labour market

Citation:
Barth, James R.; McCarthy, Donald / 2013. "What Is the Likely Impact of the Volcker Rule on Markets, Businesses, Investors, and Job Creation?." The Journal of Private Enterprise, 28(2): 63-74.