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Intended and Unintended Results of the Proposed Volcker Rule

Skold, Alida S. (2011): Intended and Unintended Results of the Proposed Volcker Rule.

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Abstract

The intention of regulation is to protect the vulnerable. However, unintended results of regulation can cause the opposite occur. In its present form, the proposed Volcker Rule prohibits proprietary trading and has the potential of continuing the liquidity crisis that aided in the degradation of the housing market into decreased liquidity in the capital markets. The rule also prohibits the owning, sponsoring, or having certain relationships with hedge funds beyond three percent by the covered banking entities. Risk is transferring to less regulated financial institutions as new hedge funds are opened. The risk can have a profound impact on the retirement community through underfunded pension funds searching for absolute returns. Another unintended result of the proposed Volcker Rule is banks conducting business in the United States or with United States “residents” will be at a competitive disadvantage due to lost revenues and the high cost of compliance. The rule has the potential to cause United States companies to be at a competitive disadvantage in global markets.

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