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U.S. bank regulators unveiled the so-called “Volcker Rule†for public comment today.
Under the provision, banks would have to stop any proprietary trades by July 21, 2012, and would be barred from using foreign affiliates to conduct trades. They would have a two-year transition period to unwind their holdings of investment firms that conduct prohibited proprietary trades. The rules include exemptions that allow such trading in some cases, such as underwriting and making markets in securities and to hedge risks.
The proposal is designed to prohibit trades designed to make a quick profit, but critics say the exemption for hedging could allow banks to make the type of bets the rule aimed to prevent.
Below is a timeline of the Volcker Rule.
January 2009
The Group of 30, a policy advice group chaired by former Federal Reserve Chairman Paul Volcker, releases a report that includes a call for restrictions on banks trading for profit with their own money, a practice known as proprietary trading.
Dec. 2, 2009
Rep. Barney Frank, D-Mass., proposes a financial reform package that doesn’t ban proprietary trading. It does grant the Federal Reserve the right to limit such trading if it threatens the safety and soundness of the U.S. banking system.
Dec. 11, 2009
Rep. Frank’s financial reform language passes the House of Representatives unchanged.
Jan. 21, 2010
At a White House press briefing, President Obama proposes a rule that would prevent banks from owning, investing or sponsoring hedge funds, private equity funds or proprietary trading operations for their own profit. With Mr. Volcker at his side, he dubs the rule the Volcker Rule, “after this tall guy behind me.â€
Feb. 24, 2010
The Volcker rule runs into headwinds in the Senate as some senators move to water it down by giving more discretion to regulators on how best to enforce size and risk limits at banks.
April 15, 2010
Sen. Christopher Dodd, D-Conn., introduces a financial reform package in the Senate that directs federal agencies to develop rules prohibiting proprietary trading and fund sponsorship by banks.
June 24, 2010
Lawmakers move closer to a deal could allow big banks to invest a small amount of their money in hedge funds or private-equity deals, such as 3% of their capital, but they wouldn’t be allowed to come to the rescue of any organizations in which they have investments. Negotiations were continuing, and details remained in flux.
July 21, 2010
President Obama signs the Dodd Frank Act into law. Section 619, outlining the Volcker Rule, runs 11 pages.
Oct. 1, 2010
Financial Stability Oversight Council solicits public comment on Volcker Rule.
Oct. 27, 2010
Volcker, seeking to influence the eponymous rule he helped create, tells administration officials they should avoid writing narrow regulations that banks can seek to exploit or evade.
Nov. 4, 2010
Rep. Spencer Bachus warns regulators not to “rigidly†implement a new rule aimed at curbing banks’ risk-taking ability, saying it will impose “substantial costs†on the economy.
Jan. 18, 2011
Oversight council completes its study of the rule, after gathering more than 8,000 comments — starting the clock on an Oct. 18 deadline for federal agencies to implement it.
Sept. 21, 2011
According to draft version of the Volcker rule, banks could be allowed to continue making risky bets with their own capital, diluting the provision’s original ban on “proprietary trading.â€
Oct. 11, 2011
Federal Deposit Insurance Corp. circulates a notice of rulemaking, asking for public comment on 383 questions related to the rule.
Jan. 13, 2012
Deadline for public comments on Volcker rule.
July 21, 2012
Volcker Rule is to become effective.