Agencies Adopt Volcker Rule

(CN) - Five federal agencies adopted the "Volcker rule," which bans banks' riskiest trading while allowing market-making operations, where banks make most of their money.

The Securities and Exchange Commission, the Federal Deposit Insurance Corp., the Federal Reserve, the Commodity Futures Trading Commission and the Comptroller of the Currency approved the final version of the rule, which bars banks with federally insured deposits from placing speculative bets with their own capital.

SEC Chair Mary Jo White said in a statement Tuesday that the rule is "designed to significantly reduce risks to our economy and financial system while preserving the vitality of the U.S. capital markets."

Many banks were relieved that the rule did not prohibit market-making, also called principal trading, where firms use their own capital to buy and sell stocks with customers while profiting off the price spread.

Banks' market-making desks generate more than $40 billion in revenue a year, according to Bloomberg.

Richard Kovacevich, former CEO of Wells Fargo & Co., told the news agency that the rule, named for former Federal Reserve Chairman Paul Volcker, "appears to be reasonable and one that the industry can live with."

The 70-page Volcker rule is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law in 2010 in response to the 2008 financial meltdown.

SEC Commissioner Daniel Gallagher opposed the Volcker rule's adoption, calling it "poor judgment and the height of regulatory hubris."

The final rule goes into effect April 1, but the Federal Reserve Board has given some banks until the end of 2016 to implement certain reporting requirements. Its still uncertain how the rules will be enforced.

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