Volcker Rule – Paul Volcker is back (big time)

Former Fed Chairman Paul Volcker is back (big time), and his decision will likely impact your investment in US banks and financial institutions. In fact, Canadian and international depositing taking and loan-making banks operating in the US may likely be equally impacted as well.

The “Volcker Rule” in the words of President Obama (emphasis added),

Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers. If financial firms want to trade for profit, that’s something they’re free to do. Indeed, doing so–responsibly–is a good thing for the markets and the economy. But these firms should not be allowed to run these hedge funds and private equities funds while running a bank backed by the American people.

An excerpt and more info from WSJ (emphasis added),

Now all of the sudden Volcker gets a “rule” to call his very own? In the world of politics, getting a “rule,” or better yet a “doctrine,” is not-quite having an airport named after you, but it ain’t far off.

So what’s changed?

For one thing, the stunning loss of the Ted Kennedy’s U.S. Senate seat to a Republican seems to have refocused the administration’s attention on demonstrating to the American public that it sees the economy as job one.

And looking around at his economic braintrust, there aren’t too many that are exactly adored by voters.

From MarketWatch “A return to sanity in banking – Commentary: Obama bank plan is a response that fits the crisis

The sweeping reform President Barack Obama unveiled Thursday is short on detail, but in its broadest terms it aims to both preserve Wall Street’s ability to take risk and strengthen the money system at the core of banking.

Finally, someone with the power to make it happen is talking about a response equal in scope to the system’s failure. […]

Eliminating those conflicts is where the Volcker Rule is aimed. The president and former Federal Reserve Chairman Paul Volcker have agreed that banks need to get back to banking. The approach outlined Thursday may not be perfect, but its intent is to make the money and credit market safe and limit the impact of shadow bankers.

Think about how our language has reflected the shift in financial services. For 60 years after Depression Era reforms were passed, there was a clear line: Banks made loans and took deposits and investment banks handled securities — stocks and bonds and their derivatives.

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