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Volcker Rule - Essay Example

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Summary
The legislation prohibits commercial banks from hedging funds. Its purpose, according to its advocate Paul Volcker, is to prevent or stop banks from taking unnecessary risks with the funding…
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Volcker Rule
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Volcker Rule

Download file to see previous pages... These governments argue that the rule would make it hard for them to access loans for their public operations and projects (Goldfarb and Schneider 2012, par. 1). The business community argues that the rule should be made more permissive in case it restricts the bank’s capability to procure capital and loans (Eichler 2012, par. 7).
Local and state officials state that the Volcker Rule will make it more costly for them to gather money from investors to pay for expenditures such as housing assistance and environmental cleanup. Within the Washington region, the rule could influence borrowing costs for various agencies. Authorities that can be adversely affected by the rule include those that operate Dulles International airport, Reagan National airport, and the Walter E. Washington Convention Center (Goldfarb and Schneider 2012, par. 2). The European governments caution that the rule could further worsen the debt crisis which is already affecting the global financial markets. Foreign governments and municipalities are complaining that the legislation will considerably limit their purchasing of bonds by the banks. Thus, it will increase the interest rates that the issuers of bonds have to pay in order to attract investors (Goldfarb and Schneider 2012, par. 8).
If the Volcker Rule would be implemented, it would indicate that the banks will have to close their prop trading desks and consequently, 10,000 employees will probably lose their jobs. There are also concerns in relation to how the United States’ banks will be able to compete with the financial institutions in Europe that are less affected by the proposed legislation. Most of the US banks’ business model will be influenced by the proposal indicating that they will have lower competitive advantage in comparison with their counterparts in Europe (Brinded 2011, p1; Lynch 2012, par. 1).
The huge US banks fixed income business models offer a considerable amount of prop ...Download file to see next pagesRead More
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