The US banking industry is bracing itself as the sweeping Dodd-Frank Wall Street Reform and Consumer Protection Act is implemented. While Dodd-Frank devotes hundreds of pages to overhauling the regulatory framework for US financial institutions, several provisions stand out as potentially having a particularly significant and lasting impact on the industry. One such provision is section 619, commonly known as the Volcker rule. Applauded by some and feared by many, the rule and its namesake, former Federal Reserve Chairman Paul Volcker, espouse the principle that insured depositories have moved too far beyond traditional banking activities into lines of business that present undesirable risks.
For the global financial community facing this major regulatory development, the response has been essentially two-fold: First, what is the Volcker rule? Second, what will be its impact in the US and abroad? Neither of these questions is easy to answer, as the Volcker rule's critical details...