The Volker Rules

“Too big to fail” might be the phrase of the decade thus far, but the question remains, “what is being done to prevent this phrase from remaining part of our vernacular?”

Treasury Secretary Timothy Geithner has said the best approach to address the ‘too big to fail’ concern is requiring banks to hold more capital in reserve to cover losses. While alternate, more aggressive ideas exist, it was the secretary’s belief that banning specific activity would eliminate some legitimate activity unnecessarily.

For many months, this policy stance was seen as having the backing of the administration. However, last month, President Obama stood at a podium to discuss the banking community, and next to him stood not Secretary Geithner, but Former Fed Chairman Paul Volcker.

Volcker had spent many of the previous months sharing his own belief that banks should no longer be permitted to own, invest in or sponsor hedge funds, private equity funds or proprietary trading operations for their own profit unrelated to serving their customers. The position was titled “The Volcker Rule.”

President Obama agrees with the position. "We simply cannot accept a system in which hedge funds or private equity firms inside banks can place huge, risky bets that are subsidized by taxpayers and that could pose a conflict of interest. And we cannot accept a system in which shareholders make money on these operations if the bank wins, but taxpayers foot the bill if the bank loses."

Presently, there are several obstacles to implementing “The Volcker Rule.” However, the mere insinuation seems to be having an effect on the finance industry.