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The Economic Analysis of Volcker Rule

Author

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  • Choi Gyoung-Gyu

    (Department of Business Administration, Dongguk University, 30, Pildong-ro 1gil, Jung-gu, Seoul, 04620, Korea)

Abstract

This paper aims to analyze the final regulations of the Volcker Rule in order to assess any lingering concerns related to the administration of the Rule. Despite the problems criticized by many practitioner and scholars, implementing the Volcker Rule has benefits for banks and the overall economy. First, prohibiting proprietary trading activities may make individual institutions and the banking system as a whole safer. Second, the prohibition on banks’ ownership interest in private equity and hedge funds directly addresses a source of bank default risk – the Volcker Rule limits banks’ exposure to risky private equity and venture capital activities, which are activities that contributed to banks’ probability of default during the 2008 financial crisis. Third, heightened compliance standards and documentation requirements will help improve transparency of banking activities and contribute to bank stability.

Suggested Citation

  • Choi Gyoung-Gyu, 2021. "The Economic Analysis of Volcker Rule," Asian Journal of Law and Economics, De Gruyter, vol. 12(2), pages 121-148, August.
    • Handle: RePEc:bpj:ajlecn:v:12:y:2021:i:2:p:121-148:n:1
    DOI: 10.1515/ajle-2021-0020
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    More about this item

    Keywords

    ABS; Bank Holding Company Act; covered fund; Dodd–Frank Act; proprietary trading; repurchase agreement; Volcker Rule;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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