FDIC | Banker Resource Center: Volcker Rule (2024)

FAQs

FDIC | Banker Resource Center: Volcker Rule? ›

The Volcker Rule generally restricts banking entities from engaging in proprietary trading and from owning, sponsoring, or having certain relationships with a hedge fund or private equity fund.

The Volcker rule generally prohibits banking entities from engaging in proprietary trading or investing in or sponsoring hedge funds or private equity funds.

The Volcker Rule does apply to every foreign entity that directly or indirectly maintains a bank branch or agency in the United States, or controls a commercial lending company.

Relaxation, 2020-present

On June 25, 2020, the Volcker Regulators relaxed part of the rules involving banks investing in venture capital and for derivative trading.

The FDIC is the primary federal regulator for state-chartered banks that are not members of the Federal Reserve System. The Office of the Comptroller of the Currency (OCC) is the primary federal regulator for all national banks.

A bank may be excluded from the Volcker Rule if it does not have more than $10 billion in total consolidated assets and does not have total trading assets and liabilities of 5% or more of total consolidated assets.

The final rule prohibits banks from engaging in short-term proprietary trading of certain securities, derivatives, commodity futures and options on these instruments, for their own account. The final rule also imposes limits on banks' investments in, and other relationships with, hedge funds or private equity funds.

Provisions of the Volcker Role

The rule prevents banks from using their own accounts to engage in proprietary trading of short-term securities, derivatives, futures, and options. This rule is based on the fact that such high-risk investments do not benefit the bank's depositors.

The intent of the Volcker Rule is to prohibit banking entities with access to the discount window at the Federal Reserve or to FDIC insurance from engaging in risky proprietary trading. It is important to keep in mind that not all financial firms are covered.

The Volcker Shock was a period of historically high interest rates precipitated by Federal Reserve Chairperson Paul Volcker's decision to raise the central bank's key interest rate, the Fed funds effective rate, during the first three years of his term.

How did Volcker stop stagflation? ›

Under Federal Reserve Board Chair Paul Volcker, the prime lending rate was raised to above 21% to reduce inflation. Inflationary pressures eased as oil prices and union employment fell, limiting the growth of costs and wages.

To subdue double-digit inflation, Chairman Volcker announced, in October 1979, a dramatic break in the way that monetary policy would operate. In practice, the new approach to monetary policy involved high interest rates (tight money) to slow the economy and fight inflation.

The Bank of North Dakota (BND) is a state-owned, state-run financial institution based in Bismarck, North Dakota. It is the only government-owned general-service bank in the United States.

A: The FDIC (Federal Deposit Insurance Corporation) is an independent agency of the United States government that protects bank depositors against the loss of their insured deposits in the event that an FDIC-insured bank or savings association fails.

The Volcker Rule consists of two major parts: rule preventing banking institutions from partaking in proprietary trading from their own funds and limiting banking institutions from investing in hedge funds or private equity funds.

The Federal Deposit Insurance Corporation has served as an integral part of the nation's financial system for 50 years. Established by the Banking Act of 1933 at the depth of the most severe banking crisis in the nation's history, its immediate contribution was the restoration of public confidence in banks.