Dodd-Frank Law, ‘Act of Congress’

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The “Volcker rule,” is basically a ban on proprietary trading by banks. Named after former Federal Reserve Chairman Paul Volcker, it seeks to prevent Federal Deposit Insurance Corporation-insured banks from taking risky bets. There is a very thin line between banned proprietary trading and market-making, which is an effort on behalf of banks t keep liquidity in the market low.

It will be very difficult to fully restrict proprietary trading, which has been made clear in the accounting books from Goldman Sachs prior to the Senate of Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations.   At issue was whether Goldman sold products to clients and then bet the firm’s own money that these products would lose value, according to Kaiser. Goldman CEO Lloyd Blankfein responded that its proprietary trading account was irrelevant to market-making, and likely not of concern to its clients. One person’s proprietary trading, restricted by the Volcker rule, is another’s market-making.

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