Entries in Volker Rule (2)


Volcker Rule Unveiled: May Slash Wall Street Bonuses

iStockphoto/Thinkstock(WASHINGTON) -- The government’s biggest financial heavyweights released a long-awaited version of the financial regulation known as the Volcker Rule, which may regulate “high-risk” trading more closely and lead to smaller Wall Street traders’ bonuses.

The Treasury Department, Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Securities Exchange Commission (SEC) on Tuesday released the 200-plus page proposal. The FDIC allows the public to comment about the rule by Jan. 13.

The proposed Volcker rule, named after former Federal Reserve chairman Paul Volcker, is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law in July 2010. The rule prohibits two activities among insured depository institutions -- any bank or credit union that is federally insured and accepts deposits, and that includes traditional banks as well as Goldman Sachs, Morgan Stanley, and American Express.

First, it prohibits those financial companies from engaging in “short-term proprietary trading of any security, derivatives, and certain other financial instruments” from an entity’s own funds. Second, it “prohibits owning, sponsoring, or having certain relationships with, a hedge fund or private equity fund.”

The rule would require banks to establish an “internal compliance program” and banks with “significant trading operations” to report to federal agencies. The rule is subject to exemptions, which financial watchdogs say are not stringent enough, and banks say are too complex.

The Treasury said the rule details whether a nonbank financial company should be subject to “enhanced supervision” to prevent a future financial crisis. In the recent financial crisis, financial distress at certain nonbank financial companies contributed to, “a broad seizing up of financial markets,” according to the council.

Under the proposed rule, traders’ bonuses could see a cut if they are paid based on revenue from fees, commissions, bid/ask spreads and not the appreciation or profit from their hedged positions.

Frank Keating, president of the American Bankers Association, said he feared the “complexity” of the rule will require bank employees whose sole jobs are to comply with the rule, further inhibiting “U.S. banks’ ability to serve customers and compete internationally.”

Keating said regulators estimate banks will spend nearly 6.6 million hours to implement the rule, or which 1.8 million hours would be required every year.

“That translates into 3,292 years, or more than 3,000 bank employees whose sole job will be complying with this rule,” he said in a statement. “They will be transferred to a role that provides no customer service, generates zero revenue and does nothing for the economy."

Copyright 2011 ABC News Radio


Financial Regulators Approve Plan for Implementing Volcker Rule

Photo Courtesy - Getty Images(WASHINGTON) -- Top financial regulators approved recommendations on how to implement the Volcker Rule, which intends to keep government-backed banks from engaging in speculative and risky activities by prohibiting banking entities from conducting proprietary trading and limiting investments in hedge funds and private equity.

In its third public meeting, the Financial Stability Oversight Council approved an 81-page study outlining several measures for implementing the rule, from performing quantitative analysis to detect proprietary trading to establishing a compliance regime which would require CEOs to vouch for the regime’s effectiveness.

The study was required by the Dodd-Frank Wall Street reform law enacted last summer as a means of determining how to turn the rule into legislation.

The key measures detailed in the study consist of the use of quantitative methods to identify trends in trade activity that may be consistent with proprietary trading; the employment of a “basket of metrics” to identify prohibited activity, among which would require the categorization of trade as either customer-initiated or trader-initiated; the monitoring of an internal compliance regime by supervisors and CEOs; and the prohibition of banks from investing in hedge funds or private equity funds and requiring banks to disclose any exposure to these funds.

The release of the study acts as a road map for implementing the Volcker Rule.  Regulators will consider the council’s recommendation and will have nine months to develop the final rules for implementation.

Copyright 2011 ABC News Radio

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