This post comes to us from Bradley K. Sabel, a partner at Shearman & Sterling LLP, and is based on a Shearman & Sterling client publication.
The “Volcker Rule” continues to receive attention as one of the most forceful provisions adopted by Congress in its recent enactment of financial reform legislation. The Volcker Rule is far-reaching and covers both U.S. banking groups and non-U.S. banking groups with U.S. banking operations. Although the contours of the rule have now been established, the rule has become even more complex; substantial questions remain as to how the rule will be implemented, which we discuss below. As highlighted in this publication, Congress has given regulators little time to resolve these important issues. [1]
The push for adoption of the Volcker Rule [2] was fueled by a nostalgic call to return to a more basic model of commercial banking that many associate with Glass-Steagall Act restrictions that were repealed in 1999. Indeed, the adoption of the Volcker Rule marks a partial reversal of a decades-long trend towards a more expansive view of the lines of business in which institutions may engage under the commercial banking and bank holding company model. Like Glass-Steagall, the rule is premised on a need to eliminate real and potential conflicts of interest between a banking entity and its customers. Congress’ yearning for a simpler time, however, will impose increasingly complex rules on banking groups and will force them to change, if not abandon, practices that predate Glass-Steagall. Unlike many other parts of Dodd-Frank, Congress has given the regulators broad authority to interpret and modify the rule. [3] As rules are proposed and adopted, there will be greater clarity on the extent to which covered activities will need to be transferred, terminated or wound down.
