The Volcker Rule, a key part of President Barack Obama's 2010 financial reform, has finally been adopted. All five regulators have given the green light to the law, which does not need further passage in Congress (it was passed along with the rest of the Dodd Frank Act).
The regulation limits the riskier activities of banks, putting limits between the investments that can be made with the banks' own money and that of customers. Investments in risky assets, for example those of hedge funds, are then regulated. Conceived by former Fed chairman Paul Volcker, to whom it owes its name, over the years it has been modified several times, up to the current version, in some points more stringent than the previous ones.
The text of almost a thousand pages, over 800 of which are dedicated to the preamble (that is, to the specifications on how to interpret and apply the law), defines the activities permitted to banks. For example, hedging, a standard procedure to protect companies from losses, and "market making", i.e. the possibility of buying and selling on behalf of customers, will be authorised, but the boundaries will be better defined so as not to encourage excessively risky. Banks will have until 2015 to align with the new regulation.
