US Volcker Rule not effective in reducing banks’ risk-taking in corporate bond trading, study says

14 August 2019 8:09am
The Volcker Rule hasn’t reduced banks’ risk-taking in corporate bond trading, has squeezed liquidity in this activity, and has resulted in higher trading markups charged to corporate bond clients, the US Office of Financial Research said in its first study under Trump appointee Dino Falaschetti.

“This paper suggests that the rule in its current form is not reducing dealer risk-taking in corporate bonds and may be increasing the spreads charged by covered dealers,” the working paper said.

The report is likely to lend support to the US Federal Reserve’s plan to revamp and simplify the 2014 Dodd-Frank Act rule reviled by Wall Street. The rule prohibits federally insured banks from making bets with their own money and from owning or controlling hedge funds or private equity funds.