The Volcker Rule is a function of the Dodd-Frank Act that limits proprietary trading by banks that hold consumer deposits. The rule is controversial, to say the least, but it has yet to go into effect.
U.S. Commodity Futures Trading Commission member Bart Chilton is now saying that the implementation of the Volcker Rule could prevent the return of the Glass-Steagall Act. Glass-Steagall, a slice of Depression-era legislation, separated banks from entities that held government-insured deposits. President Bill Cliton repealed Glass-Steagall in 1999.
“Volcker for me will quit that troublesome duplexity,” Chilton said—by “duplexity” Chilton is referring to the split nature of banks and other entities under Glass-Steagall. “I don’t know if we need to go back to Glass-Steagall,” he added.
Volcker Rule and Foreign Banks
Some attorneys are suggesting that the implementation of the Volcker Rule would cause foreign banks to leave U.S. markets.
As projected, all foreign banks with a branch in the U.S. must abide by the Volcker Rule. This may result in complicated compliance issues.
Furthermore, foreign banks may also be subject to the so-called “living will” rule required by Dodd-Frank. The rule, in fact, affects three times the number of foreign banks over and above U.S. domestic banks.
The problem—aside from a likely squeamishness that foreign banks may show with regard to revealing the information required by the living will—is that while also complying with the Volcker Rule, foreign banks (with U.S. branches) will not be able to rely on bailouts from their national governments. This is a peculiar regulatory move given that many foreign banks rely on state ownership.
Volcker Rule in France
Meanwhile, against the grain that the Volcker Rule will drive away foreign banks, foreign governments are actually implementing it themselves.
“The idea is to separate activities that are useful to the real economy from speculative operations that banks conduct for themselves,” said French finance minister Pierre Moscovici.