Volcker Rule Approved

The big banks who had been running wild since the days of the repealing of the Glass Steagall Act will now have to curb some of their excitement due to the Volcker Rule.

The rule was approved by all five regulatory agencies.

As President Obama said after the finalization of the rule:

The Volcker rule will make it illegal for firms to use government-insured money to make speculative bets that threaten the entire financial system, and demand a new era of accountability from CEOs who must sign off on their firm's practices.

Most big banks have already complied with the rules in anticipation of the approval.

Banks with $10 billion or less will be exempt from the rule if they don't engage in most activities covered by it.

A synopsis of the Volcker rule in the WSJ:

The Volcker rule, named after its proponent—former Fed Chairman Paul Volcker—will require banks to demonstrate ahead of time how their hedging strategies are designed to work, and formulate approval procedures for when they divert from those plans. The preamble to the rule says banks must ensure hedges are aimed at mitigating risks "at inception" and that they "should be based on analysis conducted by the banking entity of the appropriateness of hedging instruments, strategies, techniques and limits" as well as an "analysis of the correlation" between the hedge and its underlying risks.

The rule does include some wins for banks, including allowing firms to trade foreign sovereign debt, a shift from an earlier version of the rule that provided an exemption to the proprietary trading ban for U.S. Treasury securities but didn't mention foreign bonds.

Now let's see if the regulators have the stomach and the man power to police the situation.