U.s. Authorities adopt limits on bank proprietary trading

u.s. authorities adopt limits on bank proprietary trading

U.S. Regulators have approved the introduction of the financial industry’s controversial "volcker rule" to limit proprietary trading by banks. According to the will of the federal reserve, however, the new rule will be implemented with a time delay only from 2015, it said in the paper adopted on tuesday in washington.

The rule prohibits banks from speculating with money that is largely backed by the state. This has been a major profit generator for many institutions, but a major risk factor for taxpayers. After years of struggle, the U.S. Is learning its lessons from the severe financial crisis of 2008 in the face of stiff opposition from lobbyists.

U.S. President barack obama buried the approval of the authorities: "the volcker rule prohibits firms from using government-backed money to make speculative bets that put the entire financial system at risk," he said, according to a news release.

However, congress must play along and provide a budget for the implementation of the rules. The republicans in particular were able to put a spoke in obama’s wheel.

In addition to the fed, four other authorities had to approve the application of the almost 1,000-page set of regulations. Previously, its introduction had been scheduled for 2014 already.

The name goes back to the former head of the central bank, paul volcker, who was also an advisor to obama in the meantime. He also proposed the rule as a consequence of the bank deaths since the financial crisis of 2007 and 2008. Since then, nearly 500 financial institutions have failed, according to the FDIC. In the seven years prior to 2007, the number was only 32. FDIC insures customer deposits up to $250,000 (181,000 euros).

The fed will apply the rules to the largest banking groups under its supervision. Small financial institutions largely excluded, it said. Some major banks had already largely closed their trading areas in anticipation of the crisis. Jpmorgan boss jamie dimon, on the other hand, is one of the most vocal opponents of the company.

The final practical effects of the rules are not yet clear. According to experts, the legal process will have to determine when proprietary trading by banks is against the rules and when it is a legitimate part of the bank’s core activities.