Open Board Meeting April 8, 2014 | Summary and Q&A

TL;DR

The final rule implementing the Volcker Rule, which aims to limit excessive risk-taking by depository institutions, has been completed after an extensive and challenging rule-making process. The rule allows for market making, risk-mitigating hedging, and underwriting activities, but prohibits proprietary trading and certain hedge fund and private equity activities.

Key Insights

• 📏 The final rule includes provisions for market making, risk-mitigating hedging, and underwriting activities.
• 🛀 The rule aims to strike a balance between limiting excessive risk-taking and maintaining liquidity in financial markets.
• 🏦 Smaller banks are exempt from certain requirements of the rule, but are expected to communicate with examiners to ensure compliance.
• 🖐️ Supervisors will play a crucial role in implementing and enforcing the rule to ensure its effectiveness.
• 😚 The Volcker Rule is not a guarantee that firms will not lose money in trading operations, as it does not cover all forms of trading risk.

Transcript

CHAIRMAN BEN S. BERNANKE: Good morning. Today, we and several of our sister agencies will be considering the final rule implementing the provision of the Dodd-Frank Act, commonly called the Volcker Rule. This provision of the Dodd-Frank Act has the important objective of limiting excessive risk-taking by depository institutions and their affiliates... Read More

Questions & Answers

Q: What is the main objective of the Volcker Rule?

The main objective of the Volcker Rule is to limit excessive risk-taking by depository institutions and their affiliates.

Q: What activities are allowed under the final rule?

Market making, risk-mitigating hedging, and underwriting activities are allowed under the final rule.

Q: What activities are prohibited under the final rule?

Proprietary trading and certain hedge fund and private equity activities are prohibited under the final rule.

Q: How does the final rule define proprietary trading?

Proprietary trading is defined as the purchase or sale of securities, derivatives, options, or contracts for future delivery for the purpose of short-term price movements. The rule includes exemptions for underwriting activities, market making activities, and risk-mitigating hedging activities.

Summary & Key Takeaways

• The final rule implementing the Volcker Rule has been completed after a lengthy and challenging rule-making process.

• The rule aims to limit excessive risk-taking by depository institutions and their affiliates, while allowing for market making, risk-mitigating hedging, and underwriting activities.

• Proprietary trading and certain hedge fund and private equity activities are prohibited under the rule.