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Intended and Unintended Results of the Proposed Volcker Rule

Author

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  • Skold, Alida S.

Abstract

The intention of regulation is to protect the vulnerable. However, unintended results of regulation can cause the opposite occur. In its present form, the proposed Volcker Rule prohibits proprietary trading and has the potential of continuing the liquidity crisis that aided in the degradation of the housing market into decreased liquidity in the capital markets. The rule also prohibits the owning, sponsoring, or having certain relationships with hedge funds beyond three percent by the covered banking entities. Risk is transferring to less regulated financial institutions as new hedge funds are opened. The risk can have a profound impact on the retirement community through underfunded pension funds searching for absolute returns. Another unintended result of the proposed Volcker Rule is banks conducting business in the United States or with United States “residents” will be at a competitive disadvantage due to lost revenues and the high cost of compliance. The rule has the potential to cause United States companies to be at a competitive disadvantage in global markets.

Suggested Citation

  • Skold, Alida S., 2011. "Intended and Unintended Results of the Proposed Volcker Rule," MPRA Paper 35621, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:35621
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    File URL: https://mpra.ub.uni-muenchen.de/35967/1/MPRA_paper_35967.pdf
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    References listed on IDEAS

    as
    1. Michael R. King & Philipp Maier, 2007. "Hedge Funds and Financial Stability: The State of the Debate," Discussion Papers 07-9, Bank of Canada.
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    Cited by:

    1. Elayan, Fayez A. & Aktas, Rafet & Brown, Kareen & Pacharn, Parunchana, 2018. "The impact of the Volcker rule on targeted banks, systemic risk, liquidity, and financial reporting quality," Journal of Economics and Business, Elsevier, vol. 96(C), pages 69-89.

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    More about this item

    Keywords

    Volcker Rule; Regulation; Prop Trading; Market Making; Hedge Fund; Risk; Banking Regulation;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G2 - Financial Economics - - Financial Institutions and Services
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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