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The Volcker Rule: Implementation Imminent or Unlikely?

Paul Volcker, former United States Federal Reserve Chairman and originator of the Volcker Rule, was appointed to the President’s Economic Recovery Advisory Board in early 20091  The board was created with the intent to advise the Obama Administration on economic recovery matters. The creation of the board also gave Volcker the platform to lay the foundation for the Volcker Rule.

The Volcker Rule proposal restricts United States banks from making certain kinds of speculative investments that do not benefit their customers. In doing this, the rule separates investment banking, private equity and hedge funds sections of financial institutions from their consumer lending arms.2  Thus, banks are prohibited from entering into an advisory and creditor role with clients, such as private equity firms.3 The essence of this proposal stems from Volcker’s belief that a functioning commercial bank is essential to the stability of the entire financial system, so an unacceptable level of systemic risk is created when banks engage in high-risk speculation.4  Volcker argued that such speculative activity played a key role in the financial crisis beginning in 2007.

President Obama publicly endorsed the rule in 2010, and it was enacted as an amendment to the broader Dodd-Frank financial reform legislation in 2010.5  Three years later, however, the rule is unfinished and unenforced, mired in policy tangles and infighting among five separate agencies who are responsible for writing the rule.6

The agencies are far past the mandatory deadline for the finalization of the Volcker rule that was written in to the Dodd-Frank Act.7 In early 2013, this delay spurred Occupy the SEC to file suit in the Eastern District of New York over the delays in promulgating the rule.8  On the other hand, many big banks that will be most affected by this rule are pleased by the delay in implementation under the belief that as the writing process is extended, the rule is becoming more moderate.9

This delay in implementation is primarily due to the difficulties in coordinating the process across five agencies. The five agencies responsible for writing the rule have continued to argue over particularities. As of recently, Treasury Secretary Jacob J. Lew and President Obama have urged the agencies to complete the rule by the end of the year.10  Despite this short deadline, two top regulators, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), recently raised objections to the rule, arguing that it is too soft on banks.11

SEC commissioner Kara Stein believes that the rule allows banks to sidestep its purpose. She argues for harsher policies throughout the rule. Meanwhile, CFTC Chairman Gary Gensler has told officials that he is concerned that the rule does not crack down hard enough on proprietary trading, which is banned by the Volcker rule. Gensler wants the addition of language that would tighten the market making definition.12 These late in the game objections are making it increasingly unlikely that the agencies will finish writing the rule by the end of the year deadline, as imposed by the President.

In light of the negative media attention surrounding, the Obama administration is undoubtedly looking for a victory. Many regulators view the Volcker Rule as a litmus test of the strength of the Dodd-Frank Act, especially after regulators weakened other rules under that 2010 law.13  Although the Volcker Rule is one of 400 regulations to arise from the sweeping overhaul the Obama administration implemented, the symbolic nature of the rule has captivated Washington and Wall Street.14 Given the importance of the rule to the Obama administration’s vulnerable public perception, there is increasing pressure on agencies to finish the rule and implement it by the end of the year. Whether this will actually happen likely depends on how much pressure the Obama administration is willing to put on the agencies to meet the deadline.

  1. Jake Tapper, Volker to Chair President’s “Economic Recovery Advisory Board,” ABC News (Nov. 26, 2008, 8:21 AM),

  2. Volcker Rule, Investopedia, (last visited Nov. 21, 2013). 

  3. Id. 

  4. Paul Volcker, How to Reform Our Financial System, N.Y. Times (Jan. 30, 2010),

  5. Scott Patterson & Deborah Solomon, Volcker Rule to Curb Bank Trading Proves Hard to Write, Wall St. J. (Sept. 10, 2013, 7:55 PM),

  6. Id. 

  7. Occupy the SEC Sues Federal Reserve, SEC, CFTC, OCC, FDIC and U.S. Treasury Over Volcker Rule Delays, Occupy the SEC blog (Feb. 27, 2013),

  8. Id. 

  9. Ronald D. Orol, Volcker rule deadline is 2014, MarketWatch (Apr. 19, 2012, 3:05 PM),

  10. Peter Eavis & Ben Protess, Pressure Builds to Finish Volcker Rule on Wall St. Oversight, N.Y. Times Dealbook (Nov. 17, 2013, 7:38 PM),

  11. Scott Patterson & Andrew Ackerman, ‘Volcker Rule’ Faces New Hurdles, Wall St. J. (Nov. 19, 2013, 7:38 PM),

  12. Eavis & Protess, supra note 10. 

  13. William Alden, Pressure to Finish Volcker Rule Quickly, N.Y. Times Dealbook (Nov. 18, 2013, 8:10 AM),

  14. Id.