Volcker Rule

The Volcker Rule is a regulation that was introduced in the United States as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The rule was named after Paul Volcker, former Chairman of the Federal Reserve, who proposed the rule as a way to prevent banks from engaging in risky speculative trading activities that could endanger the stability of the financial system.

The Volcker Rule is a regulatory measure designed to limit the amount of speculative trading that banks can engage in. It prohibits banks from engaging in so-called proprietary trading, or transactions where the bank is trading for its own benefit. The rule also places limits on investments banks can make in hedge funds and private equity funds.

An example of this rule in action would be a bank investing in a stock that could potentially benefit the bank in the long run, but that could require a long-term commitment of capital. The Volcker Rule would prohibit this type of transaction, as it is considered a form of proprietary trading.

The goal of the Volcker Rule is to protect consumers and taxpayers from the potential losses that could result from risky trading activities by banks. By limiting banks' ability to engage in these activities, the rule aims to reduce the likelihood of financial crises and to promote the stability of the financial system.