Intended and Unintended Consequences of the Proposed Volcker Rule

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

Abstract

Regulation is intended to protect the vulnerable. However, in its present form the unintended consequences of the proposed Volcker Rule has the potential of continuing the liquidity crisis that aided in the degradation of the housing market into decreased liquidity in the capital markets. In addition to increasing costs to the investor and decreasing market efficiency from increased bid ask price spreads, the proposed rule will transfer risk to less regulated financial institutions as new hedge funds open. The risk can have a profound impact on the retirement community through underfunded pension funds searching for absolute returns. Another unintended consequence of the proposed Volcker Rule is how the rule may place banks conducting business in the United States or with United States “residents” at a competitive disadvantage due to lost revenues combined with the high cost of compliance. The rule has the potential to cause United States banks and businesses to be at a competitive disadvantage in global markets.

• Item Type: MPRA Paper
• Language: English
• Keywords: Volcker Rule; Regulation; Dodd-Frank; Prop Trading; Market Making; Hedge Fund; Risk; Proprietary Trading
• Subjects: D - Microeconomics > D0 - General > D02 - Institutions: Design, Formation, Operations, and Impact; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D78 - Positive Analysis of Policy Formulation and Implementation; E - Macroeconomics and Monetary Economics > E0 - General > E02 - Institutions and the Macroeconomy; G - Financial Economics > G2 - Financial Institutions and Services; G - Financial Economics > G2 - Financial Institutions and Services > G20 - General; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking ; Venture Capital ; Brokerage ; Ratings and Ratings Agencies; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; G - Financial Economics > G3 - Corporate Finance and Governance > G38 - Government Policy and Regulation; L - Industrial Organization > L5 - Regulation and Industrial Policy > L50 - General

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