Heard of the Volcker Rule? If Not, On July, 21st 2012 You Will

The Volcker Rule was proposed by economist and former United States Federal Reserve Chairman, Paul Volcker. It states that U.S. banks are restricted from making risky investments that are not in the best interest of their customers. Sounds like common sense right?

Since the huge mortgage crisis in 2008 hit and took down thousands of homeowners, realtors, real estate attorneys, mortgage companies and construction businesses, not to mention entire towns and sections of cities across the country the Obama administration has been doing what it can to get the economy back on its feet. The implementation of the Volcker Rule and ultimately the Dodd-Frank Act is an attempt to prevent anything like this crisis from happening again.

Specifically, the Volcker Rule is a specific section of the Dodd–Frank Wall Street Reform and Consumer Protection Act. Volcker’s argument was that such risky investing played a pivotal role in the financial crisis of 2007–2010. The Dodd-Frank act is scheduled to be implemented on July 21st of 2012.

Volcker vehemently argued that strong and healthy large financial institutions were the backbone of a great economy so these banks shouldn’t be investing in long shots.  He also drove home the point that the rampant increase in the use of derivatives, which were supposed to offset the risk did exactly the opposite.

At the end of 2009 revised versions of this bill went to the House and was presented by Rep. Barney Frank and the other to the Senate Banking Committee by Chairman Chris Dodd. Dodd and Frank are directly credited with getting this act passed and it is this fact that led to the name the Dodd-Frank Act.

One Response to “Heard of the Volcker Rule? If Not, On July, 21st 2012 You Will”

  1. Bret @ Hope to Prosper March 12, 2012 at 7:02 pm #

    I’m not a big fan of Christopher Dodd or Barney Frank. They may have stuck their names on the bill and had the support to muscle it through congress. But, they bear a lot of responsbility for the collapse of 2008, including Fannie Mae. The people who were tireless advocates for these types of reforms are Elizabeth Warren, Sheila Bair and Carolyn Maloney.

    This type of legislation was way overdue. Ever since they gutted the Glass-Stegall act to allow the Citibank merger, this was bound to happen. The reckless and opaque way derivitaves were being used should have never been legal in the first place. I just wish the Dodd-Frank bill was much shorter and more concise. But it’s a lot better than nothing.