why the volcker rule is a useful tool for managing systemic risk

Upload: ekai-center

Post on 05-Apr-2018

215 views

Category:

Documents


0 download

TRANSCRIPT

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    1/21

    _f~ xfm Uigljmt T}gm N| c ]|me}g Xiig eit Ac`con`o \~|xmanl Tn|j

    D~ Acxxfmw Tnlfcth|i`3

    @^] \xmt` \lfiig ie D}|n`m||

    \}aact~;

    C` irxnacg tmo}gcxni` rignl~ eit en`c`lncg n`|xnx}xni`| wi}gh dm xi fcum xfi|m enta| n`xmt`cgn{mxfm li|x| ie |~|xmanl tn|j xfcx xfm~ rtih}lm C` i}xliam ie |}lf tmo}gcxni` wi}gh gmch xi xfm|menta| itoc`nlcgg~ lfii|n`o xi dm gm|| gmumtcomh c`h fighn`o gm|| tn|j~ c||mx ri|nxni`| N` gnm} iexfn| crrticlf xi en`c`lncg tmo}gcxni`' c `cx}tcg cgxmt`cxnum wi}gh dm xi hntmlxg~ nari|m lcrnxcgtms}ntmam`x| c`h tm|xtnlxni`| i` c||mx fighn`o| Xfm tmo}gcxni` m`clxmh h}tn`o xfm gc|x ackit

    en`c`lncg ltn|n| n` xfm 3>

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    2/21

    N. Xfm Mli`ianl| ie xfm Uigljmt T}gmXfm mli`ianl xfmit~ ie tmo}gcxni` n| umt~ lgmct Tmo}gcxm wfmtm xfmtm n| c actjmx ecng}tm Nx n|crrctm`x xfcx c ackit actjmx ecng}tm n` xfn| ltn|n| wc| xfm mamtom`lm ie |~|xmanl tn|j Aitmli`ltmxmg~' |~|xmanl tn|j mamtomh wfm` cootmocxm lcrnxcgn{cxni` ie xfm en`c`lncg |mlxit dmlcam

    giw Xfm n`x}nxni` eit wf~ xfn| n| c rtidgma n| |xtcnofxeitwcth _fm` c en`c`lncg enta| lcrnxcg n|giw' nx n| hneenl}gx eit xfcx enta xi rmteita en`c`lncg |mtunlm|: c`h wfm` lcrnxcg n| giw n` xfmcootmocxm' nx n| `ix ri||ndgm eit ixfmt en`c`lncg enta| xi |xmr n`xi xfm dtmclf Xfn| dtmcjhiw` n`en`c`lncg n`xmtamhncxni` n| xfm tmc|i` |mumtm li`|ms}m`lm| ill}ttmh n` xfm dtichmt mli`ia~_fm` en`c`lncg enta| xfmtmeitm tc` coti}`h h}tn`o xfm ltn|n| rmtnih' xfm~ li`xtnd}xmh xi xfmcootmocxm |fitxecgg' gmchn`o xi li`|ms}m`lm| dm~i`h xfm enta nx|mge Xfm enta fc| `i n`lm`xnum xiac`com xfm |~|xmanl tn|j Xfm `mocxnum mvxmt`cgnx~ c||ilncxmh wnxf |}lf tn|j| nargnm| xfcx rtnucxmactjmx| lc``ix meenlnm`xg~ |igum xfm rtidgma' |i oiumt`am`x n`xmtum`xni` n| tms}ntmh

    Xfm Hihh!Etc`j Clx an||mh xfm irritx}`nx~ xi env xfm `mocxnum mvxmt`cgnx~ ie |~|xmanl tn|j d~nari|n`o xfm |xc`hcth mli`ianl |ig}xni` ie xcvn`o |}lf c` mvxmt`cgnx~

    4N` ixfmt with|' xfmtm

    |fi}gh dm c` chhnxni`cg emm' |}tlfctom it rtman}a xfcx n| xnmh |rmlnenlcgg~ xi xfm |~|xmanl tn|j ieen`c`lncg n`|xnx}xni`| c| xfm|m |~|xmanl ecng}tm| dmct li|x| i` xfm tm|x ie xfm en`c`lncg |mlxit c`hxfm tmcg mli`ia~ &mo' Clfct~c' Rmhm|m`' Rfngnrri` c`h Tnlfcth|i` &4232.. N` ithmt xi cuinhxfm|m emm|' xfm|m enta| wi}gh itoc`nlcgg~ dmliam gm|| |~|xmanl d~ lfii|n`o gm|| gmumtcom c`hfighn`o c||mx| xfcx fcum gm|| cootmocxm xcng tn|j

    N`|xmch' xfm Hihh!Etc`j Clx |mmj| xi tmo}gcxm |~|xmanl tn|j d~ |mxxn`o }r c `}admt ie dcttnmt|'xwi ie wfnlf ctm rctxnl}gctg~ naritxc`x' `camg~ m`fc`lmh lcrnxcg tms}ntmam`x| c`h xfm rtn`lnrcgxtchn`o tm|xtnlxni` ie xfm Uigljmt t}gm Xfn| wc~' xfm Hihh!Etc`j Clx lc` dm li`|nhmtmh c|mli`h!dm|x |ig}xni` d~ fcth wntn`o gmumtcom li`|xtcn`x| c`h tm|xtnlxni`| i` tn|j!xcjn`o clxnunxnm|

    Him| fn|xit~ xmgg }| c`~xfn`o cdi}x wfmxfmt xfn| n| c tmc|i`cdgm crrticlf xi tmo}gcxn`o xfmen`c`lncg |mlxit9N` xfm mctgnmt rctx ie xfm lm`x}t~' mo' h}tn`o xfm Rc`nl ie 3>2? c`h xfm uctni}|dc`jn`o rc`nl| dmxwmm` 3>

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    3/21

    tn`o!em`lmh xi xfm mvxm`x xfcx xfmtm wc| c |mrctcxni` ie xfm liaamtlncg c`h xfm aitm tn|j~'n`um|xam`x dc`jn`o clxnunxnm|' c`h &nnn. m`fc`lmh |}rmtun|ni`' c`h wn`hn`o!hiw` rtiun|ni`|' ien`hnunh}cg dc`j|' om`mtcgg~ n` xfm eita ie lcrnxcg tms}ntmam`x| c`h rtiarx littmlxnum clxni` wc|m|xcdgn|fmh

    I`m crrticlf chuilcxmh d~ xfm Unljmt| Tmritx n` xfm ]J wi}gh dm xi tn`oem`lm hiam|xnl tmxcngdc`jn`o |mtunlm| etia ogidcg wfigm|cgm)n`um|xam`x dc`jn`o wnxf xfm tn`oem`lmh dc`j dmn`ogmocgg~ c`h irmtcxni`cgg~ |mrctcxm wnxf c fnofmt lcrnxcg tms}ntmam`x \rmlnenlcgg~' xfm Unljmt|Tmritx &4233. li`lg}hm| xfcx c `}admt ie ]J dc`j| liadn`m hiam|xnl tmxcng |mtunlm| wnxfogidcg wfigm|cgm c`h n`um|xam`x dc`jn`o irmtcxni`| Dixf |mx| ie clxnunxnm| ctm mli`ianlcgg~ucg}cdgm wfngm dixf cg|i m`xcng tn|j|eit mvcargm' tmgcxn`o xi tm|nhm`xncg rtirmtx~ ucg}m| n` xfmlc|m ie tmxcng dc`jn`o Xfmnt }`|xt}lx}tmh liadn`cxni` him|' fiwmumt' onum tn|m xi r}dgnl rignl~li`lmt`|' wfnlf |xt}lx}tcg tmeita rtiri|cg|`ixcdg~ eita| ie |mrctcxni` dmxwmm` tmxcng dc`jn`oc`h wfigm|cgm)n`um|xam`x dc`jn`o|mmj xi chhtm||

    Xfm Uigljmt t}gm xcjm| c` cgxmt`cxnum' ~mx tmgcxmh' crrticlf xi ac`con`o xfm tn|j| ie gctom

    liargmv dc`j| d~ tm|xtnlxn`o lmtxcn` ~rm| ie xtchn`o clxnunxnm| N` xfn| |m`|m' xfm Uigljmt t}gm lc`dm unmwmh c| c |m`|ndgm crrticlf xi anxnocxn`o aitcg fc{cth c`h rtmum`xn`o xfm |~|xmanl tn|jd}ngh}r clti|| dc`jn`o n`|xnx}xni`| c`h `i`!dc`j |~|xmanlcgg~ naritxc`x en`c`lncg n`|xnx}xni`|&\NEN|. wfm` xfm|m enta| ecgg }`hmt xfm oiumt`am`x |cemx~ `mx

    >3. c`hRmxmt|m` c`h Tckc` &3>>8.. Xfn| n| `ix xt}m' fiwmumt' ie en`c`lncg clxnunxnm| |}lf c| rtn`lnrcgxtchn`o Tcxfmt' xfm|m clxnunxnm| ctm rmteitamh n` xfm lcrnxcg actjmx| cx gctom d~ rm`|ni` e}`h|'

    a}x}cg e}`h|' fmhom e}`h|' |iumtmno` wmcgxf e}`h|' mxl Xfm|m e}`h| ctm gm|| gmumtmh c`hom`mtcgg~ hi `ix fcum cllm|| xi xfm |cemx~ `mx Xfmtmeitm' dmlc}|m |iam `i`!litm e}`lxni`| iedc`j| lc` dm rmteitamh mg|mwfmtm n` xfm gm|| |~|xmanlcgg~ tn|j~ rctx ie xfm en`c`lncg |~|xma' xfmUigljmt t}gm n| c` mli`ianlcgg~ |m`|ndgm wc~ xi ac`com xfm |~|xmanl tn|j ie dc`j|

    NN. Lcrnxcg Tms}ntmam`x| Ctm @ix \}eenlnm`x\iam c`cg~|x| c`h clchmanl| fcum cto}mh xfcx |~|xmanl tn|j' nttm|rmlxnum ie wfmtm nx n| fi}|mh n`c dc`j' lc` dm ac`comh unc lcrnxcg tms}ntmam`x| Eit mvcargm' n` c rcrmt n` hntmlx tm|ri`|m xi

    xfm Uigljmt t}gm' H}eenm &4234. cto}m| n`|xmch eit tnoiti}| lcrnxcg c`h gns}nhn x~ tms}ntmam`x|eit actjmx acjmt|' liadn`mh wnxf meemlxnum |}rmtun|it~ ai`nxitn`o' wnxf xfm idkmlxnum iem`|}tn`o xfcx dc`j| fcum cd}`hc`x lcrnxcg c`h gns}nhnx~ xi liumt xfmnt actjmx!acjn`o tn|j| Nhn|cotmm wnxf xfn| c||m||am`x ]`eitx}`cxmg~' lcrnxcg tmo}gcxni` n| `ix c rc`clmc eit ac`con`o|~|xmanl tn|j

    N` xt~n`o xi an`nan{m |~|xmanl tn|j' xfm tmo}gcxit lc` }|m xfm Hihh!Etc`j Clx xi meemlxnumg~ r}ggi` xwi ri||ndgm gmumt| mnxfmt xfti}of otmcxmt lcrnxcg tms}ntmam`x| &nm' gm|| gmumtcom. itxfti}of tm|xtnlxni`| i` c||mx fighn`o| &mo' }|n`o xfm Uigljmt t}gm. Nx n| naritxc`x xi }`hmt|xc`h'fiwmumt' xfcx xfm|m gmumt| ctm `ix rmtemlx |}d|xnx}xm| eit mclf ixfmt Xfm tmo}gcxit `mmh| xi r}ggdixf xfm|m gmumt|' chk}|xn`o xfma eit xfm x~rm ie en`c`lncg clxnunx~ xfm dc`j n| m`ocomh n`

    \rmlnenlcgg~' lmtxcn` x~rm| ie c||mx fighn`o|' |}lf c| xfi|m rti`m xi tmo}gcxit~ ctdnxtcom' lctt~xtchm| c`h en`c`lncg o}ctc`x~ n`|}tc`lm' ctm ngg |}nxmh eit lcrnxcg tmo}gcxni`

    Dmeitm hn|l}||n`o mclf ie xfm|m clxnunxnm| n` x}t`' om`mtcgg~' xfm tmc|i` wf~ lcrnxcg tmo}gcxni`ecng| n| xfcx nx lc` dm c fnofg~ n`meenlnm`x wc~ xi ac`com |~|xmanl tn|j

    8Xi }`hmt|xc`h xfn| rin`x'

    `ixm xfcx xfm ceitmam`xni`mh clxnunxnm| om`mtcgg~ rtih}lm |acgg ocn`| wnxf c fnof rtidcdngnx~cocn`|x gctom gi||m| wnxf c giw rtidcdngnx~ N` ithmt xi rtixmlx xfm en`c`lncg |mlxit cocn`|x xfmmamtom`lm ie |~|xmanl tn|j' tmo}gcxit| wngg tms}ntm dc`j| xi figh |}eenlnm`x lcrnxcg xi liumtgi||m| n` xfm giw rtidcdngnx~ |xcxm Dmlc}|m xfm|m gi||m| ctm om`mtcgg~ gctom c`h ill}t i`g~ wfm`cootmocxm tn|j n| rtm|m`x' xfm `mlm||ct~ lcrnxcg tms}ntmam`x| wngg dm gctom D}x xfn| wi}gh amc`xfcx dc`j| wi}gh fcum xi figh mvlm|| lcrnxcg mum` xfi}of ai|x ie xfm xnam xfmtm n| gnxxgm it `irtidcdngnx~ ie ecng}tm &mo' Jc|f~cr' Tckc` c`h \xmn` &4226.. C aitm meenlnm`x crrticlf xiac`con`o |~|xmanl tn|j' xfmtmeitm' wi}gh dm xi r}gg i` xfm Uigljmt t}gm gmumt c`h gii|m` xfmgmumt i` lcrnxcg tms}ntmam`x| d~ meemlxnumg~ dc``n`o it tm|xtnlxn`o xfm gmumg ie xfm|m clxnunxnm|

    C. Tmo}gcxit~ Lcrnxcg Ctdnxtcom8

    \iam ie xfm mvcargm| rtiunhmh dmgiw n`uigum |ml}tnxnm|' |}lf c| oiumt`am`x| c`h com`lnm|' wfnlf ctm mvmarx

    etia xfm Uigljmt t}gm Xfn| him| `ix lfc`om xfm |xt}lx}tm ie xfm mli`ianl cto}am`x n` ecuit ie xfm Uigljmt t}gm

    mvlmrx xi cto}m xfm t}gm ac~ `ix fcum dmm` dtich m`i}of

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    5/21

    I`m ie xfm gm||i`| ie xfm en`c`lncg ltn|n| n| xfm naritxc`lm ie lcrnxcg tms}ntmam`x| dmn`oli`|n|xm`xg~ |mx clti|| actjmx| c`h n`|xnx}xni`| N` ixfmt with|' ne xfm tn|j ie xfm }`hmtg~n`o gic`|n| xfm |cam' nx |fi}gh `ix acxxmt fiw xfi|m gic`| ctm |gnlmh c`h hnlmh xfti}of |ml}tnxn{cxni` n`xmta| ie hmxmtan`n`o xfm tms}ntmh lcrnxcg d}eemt ie dc`jn`o n`|xnx}xni`| ]`eitx}`cxmg~' fiwmumt'Dc|mg NNN c`h Hihh!Etc`j li`xn`}m xfm tn|j!wmnofx| crrticlf dixf wnxfn` c`h clti|| c||mx

    lgc||m|' c| wmgg c| xfm n`xmt`cg tcxn`o| crrticlf xfcx ac`~ fcum eitlme}gg~ cto}mh cocn`|x c| ctm|}gx ie xfm ltn|n| C litm rtidgma ie xfm en`c`lncg ctlfnxmlx}tm li`xn`}m| xfm eil}| i` tn|j!wmnofxmh lcrnxcg amc|}tm| ie n`hnunh}cg enta| c| xfm acn` n`hnlcxit Xf}|' clti||!xfm!dicthfnofmt lcrnxcg tms}ntmam`x|' c| ctm dmn`o rtiri|mh eit gctom dc`j| c`h \NEN|' ac~ clx}cgg~mvclmtdcxm xfm rtidgma I`m ie xfm rtidgma| xfcx mamtomh n` xfm en`c`lncg ltn|n| wc| xfmrtmemttmh lcrnxcg xtmcxam`x rtiunhmh xi lmtxcn` c||mx!dcljmh |ml}tnxnm|' |}lf c| CCC!tcxmhaitxocom!dcljmh |ml}tnxnm| &AD\. _nxf |narg~ fnofmt lcrnxcg tms}ntmam`x| eit \NEN|' nx lc``ixdm t}gmh i}x xfcx xfm rtmemtm`lm eit CCC!tcxmh AD\ it gnjmwn|m |ml}tnxnm| wngg dm mum` otmcxmt}`hmt c fnofmt iumtcgg tms}ntmam`x' lc}|n`o c` mum` dnoomt d}ngh}r n` cootmocxm |~|xmanl tn|jXf}|' lcrnxcg tms}ntmam`x| ac~ dm c rctxnl}gctg~ riit gmumt xi hmcg wnxf ctmc| rti`m xi tmo}gcxit~lcrnxcg ctdnxtcom &mo' Clfct~c' @}gjct`n c`h Tnlfcth|i` &4232..

    _nxf tm|rmlx xi xfm en`c`lncg ltn|n|' onum` gctom dc`j| cllm|| xi lfmcr en`c`ln`o' xfm dc`jn`o|mlxit m`hmh }r fighn`o lmtxcn` |ml}tnxnm| dmlc}|m' xfti}of tmo}gcxit~ giirfigm|' xfmwctmfi}|n`o ie xfm|m |ml}tnxnm| tms}ntmh gm|| tmo}gcxit~ lcrnxcg c`h' c| c tm|}gx' xfm en`c`lncgn`xmtamhnctnm| wmtm etmm xi gmumt }r xi xfm fngx Xfm|m |ml}tnxnm| ieemtmh c |rtmch iumt xfmen`c`ln`o tcxm rtmln|mg~ dmlc}|m xfm~ wmtm gm|| gns}nh c`h eclmh |~|xmanl tn|j

    Xfn| rin`x n| `ix k}|x tmgmuc`x eit xfm en`c`lncg ltn|n| C s}nlj giij cx xfm 422> dcgc`lm |fmmx| iexfm ei}t gctom|x dc`j| ! KRAitoc` Lfc|m' Dc`j ie Camtnlc' Lnxnoti}r' c`h _mgg| Ectoi ! |fiw|fighn`o| ie (33 xtnggni` witxf ie cucngcdgm!eit!|cgm |ml}tnxnm| _fngm dc`j| wngg cto}m xfm|mfighn`o| ctm `mlm||ct~ eit gns}nhnx~' ne xfn| wmtm n` eclx xfm lc|m' xfm` xfm~ wi}gh dm fighn`o|fitx!xmta Xtmc|}tnm| it lc|f N`|xmch' ac`~ ie xfm|m cucngcdgm!eit!|cgm |ml}tnxnm| ctm gi`o!xmtaoiumt`am`x| c`h c||mx!dcljmh |ml}tnxnm| e}`hmh }|n`o iumt`nofx tmri| Fiwmumt' n` xfm }`gnjmg~mum`x xfcx dch xnam| ill}t c`h gns}nhnx~ c`h actjmx tn|j |}teclm' xfm|m |ml}tnxnm| wi}gh gi|mucg}m \n`lm xfmtm n| gnxxgm it `i lcrnxcg }`hmtg~n`o xfm|m ri|nxni`| ! c`h dc`j!x~rm gmumtmh m`xnxnm|wi}gh cgtmch~ dm ecln`o xti}dgm etia gic` gi||m| ! |~|xmanl tn|j mamtom|

    Lian`ogn`o |~|xmanlcgg~ tn|j~ |ml}tnx~ fighn`o| wnxf mli`ianlcgg~ naritxc`x en`c`lncgn`xmtamhncxni` cx dc`j| c`h ixfmt gctom en`c`lncg n`|xnx}xni`| wc| i`m ie xfm acn` lc}|m| ie xfmtmlm`x ltn|n| Xfn| n| wf~ en`c`lm xfmit~ cto}m| rmt|}c|numg~ xfcx xfm d}|n`m|| aihmg ie|ml}tnxn{cxni` `mumt n`xm`hmh c||mx!dcljmh |ml}tnxnm| xi dm fmgh i` dc`j| dcgc`lm |fmmx|' c`hm|rmlncgg~ `ix xi |jntx lcrnxcg tms}ntmam`x|

    D. Lctt~ Xtchm|En`c`lncg enta|' m|rmlncgg~ xfi|m wnxf cllm|| xi dmgiw!actjmx dittiwn`o tcxm| unc xfmoiumt`am`x |cemx~ `mx' gnjm xi m`ocom n` |i!lcggmh lctt~ xtchm| Lctt~ xtchm| n`uigum d}~n`o fnof~nmghn`o en`c`lncg |ml}tnxnm| en`c`lmh d~ c giwmt &}|}cgg~ |fitx!xmta. ~nmghn`o |ml}tnx~ Mvcargm|ie lctt~ xtchm| ctm tnhn`o xfm ~nmgh l}tum &mo' d}~n`o gi`o!xmta oiumt`am`x!dcljmh |ml}tnxnm|.'xcjn`o |acgg cai}`x| ie ltmhnx tn|j &mo' d}~n`o CCC!tcxmh |ml}tnxnm|.' fighn`o gns}nhnx~ &mo'

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    6/21

    d}~n`o gm|| gns}nh |ml}tnxnm| wnxf gnxxgm it `i ltmhnx tn|j.' n`um|xn`o n` xcng tn|j &mo' actjmx tn|jxfcx omx| tmcgn{mh umt~ tctmg~. c`h d}~n`o fnof n`xmtm|x tcxm l}ttm`lnm| en`c`lmh d~ giw n`xmtm|xtcxm l}ttm`lnm| Xfm|m xtchm| ctm }|}cgg~ giw tn|j n` `cx}tm' rc~n`o iee xfm ~nmgh |rtmch n` ai|x|xcxm| Liaai` xi cgg lctt~ xtchm|' fiwmumt' n| c giw rtidcdngnx~ ie c |~|xmanlcgg~ gctom gi||

    Xi dmxxmt }`hmt|xc`h xfm|m xtchm|' li`|nhmt c| c` mvcargm xfm d}|n`m|| aihmg ie Ec``nm Acm c`hEtmhhnm Acl Xfm|m enta| n`um|xmh crrtivnacxmg~ (3= xtnggni` n` dc`j!itnon`cxmh riig| ieaitxocom| cx c umt~ fnof gmumtcom tcxni Dmlc}|m ie xfm nargnlnx oiumt`am`x o}ctc`xmm ie xfmnthmdx' xfm|m enta| wmtm cdgm xi xcjm xfm|m dmx| cx c giw en`c`ln`o li|x Nx n| `iw wnhmg~ tmlio`n{mhxfcx xfn| aihmg wc| c tmlnrm eit hn|c|xmt' |n`lm nx liadn`mh rtnucxm rtienx xcjn`o wnxf |ilncgn{mhtn|j Xfm dc`jn`o |mlxit h}tn`o xfm en`c`lncg ltn|n|' fiwmumt' giijmh cgai|x nhm`xnlcg xi Ec``nmc`h Etmhhnm C Gmfac` Dtixfmt| tmritx etia Crtng 4226 |fiw| fighn`o| ie tm|nhm`xncg aitxocom!dcljmh |ml}tnxnm| ie ]\ dc`j| c`h xftnex| Xfm|m fighn`o| n`lg}hmh (>23 dnggni` ie com`l~|ml}tnxnm| c`h (86< dnggni` ie |}drtnam CCC!tcxmh |ml}tnxnm|' umt|}| (?83 dnggni` c`h (

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    7/21

    ie xfm s}ctxmtg~ engn`o| ie CNO etia mctg~ Emdt}ct~ 4226' wmgg dmeitm xfm~ wmtm dti}ofx hiw`'CNO hm|ltndm| xfmnt `iw n`ecai}| (=4? dnggni` higgct ie ltmhnx hmec}gx |wcr &LH\. ri|nxni`| d~xfmnt CNO en`c`lncg rtih}lx| oti}r &CNOER. CNOER/| LH\| wmtm wtnxxm` i` CCC!tcxmh|ml}tnxnm| c`h xf}| li}gh i`g~ mumt ecng ne mvxtmam cootmocxm tn|j wc| tmcgn{mh _f~ hnh CNOERwtnxm |}lf li`xtclx|9 C| |xcxmh n` xfm hil}am`x' crrtivnacxmg~ ( dnggni` ie xfm (=4? dnggni`

    n` `ixni`cg mvri|}tm ie CNOER| |}rmt |m`nit LH\ ritxeigni c| ie Hmlmadmt ' nx dmlcam j`iw` xfcx Dmtj|fntm Fcxfcwc~ fch wtnxxm` r}xirxni`| i` xfm \%R =22' xfm EX\M 322' xfm M}ti \xivv =2' xfm @njjmn 44= c`h ixfmt n`hnlm|Iumt xfm ~mct|' Dmtj|fntm fch liggmlxmh dnggni`| n` rtman}a| cgdmnx wnxf iumt (' i` c actjmx ucg}cxni` dc|n|' Dmtj|fntm wc| mvri|mh xi fmcu~ gi||m| i` xfm|m hmtnucxnum|Dmtj|fntm| ms}nx~ ucg}m emgg rctxg~ xi tmegmlx xfm|m hmtnucxnum gi||m| Fiwmumt' }`gnjm xfmdc`jn`o |mlxit c`h ixfmt \NEN|' Dmtj|fntm wc| mvxtmamg~ wmgg lcrnxcgn{mh' xf}| rtih}ln`o a}lfgm|| |~|xmanl tn|j eit xfm en`c`lncg |mlxit c`h iumtcgg mli`ia~

    NNN. Xfm Narclx i` Gns}nhnx~ ie xfm Uigljmt T}gmI`m ie xfm acn` ltnxnln|a| ie xfm Uigljmt t}gm tmgcxm| xi xfm t}gm| narclx i` xfm gns}nhnx~ ieen`c`lncg actjmx| Gns}nhnx~ ie |mli`hct~ actjmx| n| lgmctg~ naritxc`x Ne n||}mt| c`h n`um|xit|j`iw xfcx xfmtm n| c` clxnum |mli`hct~ actjmx' xfm` xfm gns}nhnx~ rtman}a n| tmh}lmh' rtiunhn`oeit dmxxmt rtnln`o &mo' giwmt tcxm| eit envmh n`liam rtih}lx|. \jmrxnl| ie xfm Uigljmt t}gm fcumcto}mh xfcx c` nargmam`xmh Uigljmt t}gm wngg fcarmt gns}nhnx~ mnxfmt d~ tm|xtnlxn`o actjmxacjn`o clxnunxnm| ie dc`j| it tmh}ln`o xtchn`o uig}am d~ dc``n`o xfm rtn`lnrcg xtchn`o ie dc`j|Xfm cto}am`x n| egcwmh eit xftmm tmc|i`|

    Ent|x' c`h eitmai|x' xfm n||}m ie gns}nhnx~ n| ai|x tmgmuc`x h}tn`o xnam| ie ltn|n| N` `itacg xnam|eit clxnum actjmx|' gns}nhnx~ n| `ix c| rtm||n`o c` n||}m Tcxfmt' xfm gmumg ie gns}nhnx~ rtman}a|c`h xfm ai|x mvxtmam eita ie actjmx gns}nhnx~ tn|j ill}t| wfm` hmcgmt| |f}x hiw` h}tn`o |mumtmxnam| ie |xtm|| &mo' \lfigm| &4222. c`h Rmhmt|m` &4226.. Xfn| rin`x clx}cgg~ rtiunhm| |}rritx'`ix irri|nxni`' eit xfm Uigljmt t}gm

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    8/21

    \mli`h' |iam ie xfm hn|l}||ni` tmocthn`o gns}nhnx~ narclx |mma| xi narg~ xfcx cgg xtchn`o d~gctom dc`j| c`h \NEN| tmegmlx actjmx acjn`o clxnunxnm| _m |fi}gh `ix li`e}|m xfm hneenl}gx~ n`amc|}tn`o xtchn`o n`xm`xumt|}| xfm eclx xfcx xtchn`o n`xm`x him| mvn|x' xfcx n|' |iam xtchm| ctmhtnum` xfti}of actjmx acjn`o umt|}| |iam xfti}of rtirtnmxct~ dmx| \mlxni` U dmgiw hm|ltndm|c` crrticlf xi nargmam`xn`o xfm Uigljmt t}gm wfnlf n| gm|| hmrm`hm`x i` nhm`xne~n`o rtmln|m

    hneemtm`lm| dmxwmm` xfm|m clxnunxnm| N` rctxnl}gct' ne xfm en`c`lncg n`|xnx}xni` |xc~| wnxfn` xfm |cemfctdit| ie xfm Uigljmt t}gm' c`h lfii|m| xi ac`com nx| oti|| c`h `mx n`um`xit~ ie tmc|i`cdg~gns}nh c||mx| wnxfn` c etclxni` ie nx| lcrnxcg' xfm` xfmtm wi}gh dm m`i}of gmmwc~ eit xfm ceemlxmhen`c`lncg n`|xnx}xni`| xi acjm clxnum actjmx| n` ai|x |ml}tnxnm|

    Xfnth' |iam c`cg~|x| c`h clchmanl| fcum cto}mh xfcx xfm Uigljmt t}gm wi}gh tmh}lm xfm s}cgnx~c`h lcrclnx~ ie actjmx acjn`o |mtunlm| Eit mvcargm' H}eenm &4234. wtnxm| `i`!dc`j rtiunhmt|ie actjmx!acjn`o |mtunlm| wi}gh engg |iam ie xfm tm|}gxn`o uinh n` actjmx acjn`o lcrclnx~' d}xwnxf c` }`rtmhnlxcdgm narclx i` xfm |cemx~ c`h |i}`h`m|| ie en`c`lncg actjmx| N` xfm gi`o t}`'nx n| `ix |i lgmct xfcx en`c`lncg actjmx| wi}gh `ix chk}|x xi c `mw tmonam n` wfnlf dc`j| rgc~mh c|acggmt tigm c| dtijmt!hmcgmt| Xfm muig}xni` ie xfm en`c`lm |~|xma ri|x xfm m`clxam`x ie Ogc||!

    \xmcocgg rtiunhm| c` fn|xitnlcg gm||i` wfnlf r}x| n` hi}dx xfn| Uigljmt t}gm ltnxnln|a Aitmiumt'nx n| tmc|i`cdgm xi s}m|xni` wfmxfmt xfm hian`c`lm ie dc`j| c| dtijmt!hmcgmt| n| h}m xi xfmntcllm|| xi lfmcrmt e}`hn`o unc xfm |cemx~ `mx c| irri|mh xi otmcxmt meenlnm`l~ i` xfmnt rctx Xfmeitamt lc` n`h}lm mvlm|| gns}nhnx~ c`h hn|xitx actjmx rtnlm|

    N` ithmt xi mgcditcxm i` xfm|m xftmm tmc|i`|' c| c` mvcargm' N li`|nhmt c tmlm`x tmritx d~ Ignumt_~ac` &4233. &hm`ixm I_ &4233.. Xfm tmritx cto}m| xfcx xfm Uigljmt t}gm wngg fcum c gctom`mocxnum narclx i` xfm gns}nhnx~ ie xfm litritcxm di`h actjmx Xfmnt rtnam cto}am`x tmgnm| i`tm|mctlf d~ Hnlj!@nmg|m`' Emghf}xxmt c`h Gc`hi &4233. &hm`ixm HEG &4233.. HEG &4233. en`hxfcx xfm gns}nhnx~ rtman}a ie litritcxm di`h| n`ltmc|m| htcacxnlcgg~ wnxf xfm i`|mx ie xfm|}drtnam ltn|n|' c`h' ai|x naritxc`x' xfm|m di`h| dmliam gm|| gns}nh wfm` en`c`lncg hn|xtm|| fnx|c gmch }`hmtwtnxmt I_ &4233. mvxtcrigcxm| xfm|m gns}nhnx~ meemlx| xi wfcx anofx fcrrm` ne xfmUigljmt t}gm tm|xtnlx| actjmx acjn`o n` xfm litritcxm di`h actjmx

    Ent|x' I_ &4233. an|n`xmtrtmx| xfm tmcg amc`n`o ie xfm HEG &4233. |x}h~ c`h rtmuni}|n`um|xnocxni`| ie gns}nhnx~ meemlx| h}tn`o ltn|m| HEG &4233. |fiw xfcx gctom en`c`lncg n`|xnx}xni`|n` hn|xtm|| lc` `i gi`omt ieemt en`c`lncg n`xmtamhncxni` |}lf c| actjmx acjn`o |mtunlm| h}tn`oltn|m| Dmlc}|m xfm|m n`|xnx}xni`|' c| gmch }`hmtwtnxmt|' ctm jm~ hmcgmt| n` lmtxcn` actjmx| c`h|ml}tnxnm|' xfmtm n| c f}om gns}nhnx~ narclx i` xfm|m actjmx| c`h |ml}tnxnm| Eit mvcargm' HEG&4233. wtnxm xfcx xfm gns}nhnx~ ie di`h| }`hmtwtnxxm` d~ Gmfac` wc| lgi|m xi xfm gns}nhnx~ ie c`cumtcom di`h n` xfm actjmx }r }`xng C}o}|x 4226' d}x xfn| lfc`omh wfm` xfm nggns}nhnx~ ocr

    dmxwmm` Gmfac` }`hmtwtnxxm` di`h| c`h cumtcom actjmx di`h| n`ltmc|mh |xti`og~ n` tm|ri`|m xiGmfac` engn`o eit dc`jt}rxl~ i` \mrxmadmt 3=

    Gmfac` hnh `ix ecng dmlc}|m ie xfmnt }`hmtwtnxn`o it actjmx acjn`o clxnunxnm| N`|xmch' nx wc|h}m xi xfm liadn`cxni` ie &n. (?2 dnggni` n` liaamtlncg tmcg m|xcxm c`h tm|nhm`xncg aitxocom!tmgcxmh c||mx| c`h rtnucxm ms}nx~ n`um|xam`x| xfcx fch htirrmh n` ucg}m' c`h &nn. fnof gmumtcomwnxf c fmcu~ tmgnc`lm i` |fitx!xmta' m|rmlncgg~ tmri' e}`hn`o &\mm' eit mvcargm' xfm EHNL|&4233. |x}h~ ie xfm rixm`xncg eit c` ithmtg~ gns}nhcxni` ie Gmfac` Dtixfmt|. Xfn| |fiw| xfmhc`omt ie li`lm`xtcxn`o jm~ en`c`lncg n`xmtamhncxni` clxnunxnm| wnxfn` gctom liargmv en`c`lncg

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    9/21

    n`|xnx}xni`| Gi||m| tmgcxmh xi rtn`lnrcg xtchn`o lc` dgmmh n`xi ixfmt rctx| ie xfm d}|n`m|| lc}|n`oen`c`lncg hn|n`xmtamhncxni` c`h' n` xfn| lc|m' gctom gns}nhnx~ meemlx| Xfm Uigljmt t}gm wi}gh gnanxxfm gi||m| etia rtn`lnrcg xtchn`o c`h xf}| acjm nx gm|| gnjmg~ c Gmfac` Dtixfmt| wi}gh ill}tMum` ne xfm gi||m| wmtm cx c dc`j c`h fch liam etia xfmnt gic` ritxeigni' nx |fiw| xfm tn|j|c||ilncxmh wnxf fcun`o jm~ en`c`lncg e}`lxni`| rmteitamh d~ k}|x c emw en`c`lncg n`|xnx}xni`| D~

    tm|xtnlxn`o rtn`lnrcg xtchn`o' xfm Uigljmt t}gm wi}gh gnanx xfm tmgnc`lm i` c`~ rctxnl}gct hmcgmt d~xfm actjmx cx gctom

    Xfm |n{m c`h riwmt ie gctom dc`j| n| wittn|iam Eit mvcargm' n` 422>' xfm witgh| enum gctom|xwfigm|cgm dc`j| wmtm tm|ri`|ndgm eit xfm itnon`cxni` ie `mctg~ 52 rmtlm`x ie cgg lcrnxcg actjmxxtc`|clxni`| c`h xfm |nv gctom|x ]\ dc`j| &n` ithmt' Dc`j ie Camtnlc' KRAitoc` Lfc|m'Lnxnoti}r' _mgg| Ectoi' Oighac` \clf|' c`h Aitoc` \xc`gm~. clli}`xmh eit (6>? xtnggni` iec||mx|' it crrtivnacxmg~ == rmtlm`x ie cgg c||mx| fmgh n` xfm m`xntm ]\ dc`jn`o |~|xma Xfm~irmtcxm cootm||numg~ dmlc}|m xfm en`c`lncg actjmxrgclm n| mvxtmamg~ liarmxnxnum' c`h ac`hcxm|ctm wi` it gi|x dc|mh gm|| i` xfm nhmc| rtiri|mh xfc` i` xfm xnofx`m|| ie xfm rtnln`o c`h xfmwnggn`o`m|| xi dmct tn|j Xfmnt dno dcgc`lm |fmmx| cggiw eit hnumt|nenlcxni` ie tn|j' d}x i`g~ c|

    gi`o c| tn|j| hi `ix dmliam fnofg~ littmgcxmh &c| xfm~ `iw xm`h xi dm n` aiam`x| ie rc`nl xfcxm`om`hmt gns}nhnx~ ltn|m|. Xfm Uigljmt t}gm rctxncgg~ |igum| xfm|m rtidgma| d~ tm|xtnlxn`o xfmcai}`x ie rtn`lnrcg xtchn`o' c`h |iam wi}gh cto}m xfm |lcgm ie actjmx acjn`o clxnunxnm|' d~gctom dc`j| &c`h \NEN|. Xfn| wngg gm||m` xfm gns}nhnx~ narclx ie xfm |~|xmanl tn|j ie xfm|mn`|xnx}xni`| i` xfm dtichmt en`c`lncg actjmx| c`h tmcg mli`ia~

    Fm`lm' N n`xmtrtmx xfm HEG &4233. c`cg~|n| c| |}rritxn`o' `ix li`xtchnlxn`o' xfm Uigljmt t}gm

    \mli`h' I_ &4233. meemlxnumg~ c||}am| xfcx cgg xtchn`o xtc`|clxni`| d~ gctom dc`j| &c`h \NEN|.ctm n` eclx actjmx acjn`o clxnunxnm| Xfmtm n| c gi`o fn|xit~ ie xtchn`o gi||m| cx dc`j| &c`h \NEN|.wfnlf |}oom|x| xfn| n| `ix xfm lc|m Mvcargm| ie |n`o}gct dmx| oi`m wti`o n`lg}hm (2= dnggni`gi||m| n` n`xmtm|x!i`g~ c`h rtn`lnrcg aitxocom!dcljmh |ml}tnxnm| cx Amttngg G~`lf n` 3>6?: (>5: (? dnggni` n` gi||m| n` M}tirmc`n`hmv e}x}tm| cx \ilnmxm Om`mtcgm n` 4226: c`h (6= dnggni` n` gi||m| n` |}drtnam LHI| cxAitoc` \xc`gm~ n` 4226' cai`o ac`~ ixfmt| Envmh n`liam hmrctxam`x| fi}|mh wnxfn` gctomdc`j| c`h \NEN| |}eemtmh gctom gi||m| h}tn`o xfm |}aamt ie 3>>6 wfm` xfm fmhom e}`h GXLAecngmh: fnof ~nmgh xtchn`o hmrctxam`x| |}lf c| Aitoc` \xc`gm~| m`h}tmh gi||m| n` 4222 h}tn`oxfm liggcr|m ie xfm n`xmt`mx d}ddgm: wnhm|rtmch gi||m| ill}ttmh wnxfn` aitxocom!tmgcxmhhmrctxam`x| h}tn`o xfm tmlm`x en`c`lncg ltn|n| &|mm \mlxni` UC dmgiw.: c`h tmlm`xg~ ac`~M}tirmc` dc`j|' Hmvnc n` rctxnl}gct' fcum mvrmtnm`lmh lcxc|xtirfnl gi||m| i` mvri|}tm xi xfm|iumtmno` hmdx ie xfm rmtnrfmtcg M}ti!{i`m li}`xtnm|

    C| i}xgn`mh n` |mlxni` U dmgiw' }`hmtwtnxn`o c`h actjmx acjn`o ctm naritxc`x en`c`lncgn`xmtamhncxni` clxnunxnm| \iam ie xfm|m clxnunxnm| ac~ dm|x dm rmteitamh cx dc`j| Xfmtmeitm'xfmtm n| `i tmc|i` wf~ xfm|m clxnunxnm| lc``ix li`xn`}m wnxfn` dc`j|' m|rmlncgg~ xfi|m cggiwn`oeit gnanxmh n`um`xit~ fighn`o| c`h acjn`o actjmx| n` tmc|i`cdg~ gns}nh c||mx| D}x dmlc}|m iedixf xfm |~|xmanl tn|j rtih}lmh d~ xfm|m xtchm| c`h xfm naritxc`lm ie actjmx acjn`o' nx him| `ixeiggiw xfcx cgg ie xfm|m clxnunxnm| a}|x dm mvml}xmh wnxfn` dc`j|

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    10/21

    C`ixfmt cto}am`x' i`m achm m|rmlncgg~ d~ eitmno` rignl~acjmt|' n| xfcx dc`j| fmgr ltmcxmgns}nhnx~ n` xfm actjmx| |narg~ xfti}of xtchn`o' nttm|rmlxnum ie wfmxfmt xfm|m clxnunxnm| ctmli`|nhmtmh actjmx acjn`o it rtirtnmxct~ D}x n| xfn| c oiih xfn`o9

    _nxf cllm|| xi xfm |cemx~ `mx' xfm|m enta| hn|xitx actjmx rtnlm| c`h cto}cdg~ rtih}lm mvlm||

    gns}nhnx~ I`m wi}gh rtmemt xfm hn|lnrgn`m ie xfm actjmx xi lfii|m xfm rtnln`o ie xfm|m |ml}tnxnm|c`h xfm cai}`x ie gns}nhnx~ Ne gns}nhnx~ lc``ix dm tmclfmh xfti}of |xtcnofxeitwcth amc`|' xfm` nx|}oom|x| aitm cdi}x xfm }`hmtg~n`o |ml}tnx~| uncdngnx~ xfc` c`~xfn`o mg|m

    Xfnth' dixf H}eenm &4234. c`h I_ &4233. cto}m xfcx xfm Uigljmt t}gm wngg tm|xtnlx actjmx acjn`oclxnunxnm| d~ dc`j|' lc}|n`o |fitx!xmta gns}nhnx~ rtidgma| eit |}tm c`h gnjmg~ gi`o!xmta gns}nhnx~rtidgma| c| wmgg Xfmtm n| `i hi}dx xfcx xfmtm wngg dm c xtc`|nxni` |xcom c| en`c`lncg actjmx| en`hc `mw ms}ngndtn}a ie actjmx acjn`o n`|nhm c`h i}x|nhm ie dc`j| D}x xfm cto}am`x xfcx xfn| t}gm|fi}gh dm wcxmtmh hiw` dmlc}|m dc`j| ctm l}ttm`xg~ xfm ackit rgc~mt| n| wmcj Xfm cto}am`x|fi}gh tmg~ i` wfcx |~|xma n| dm|x n` xfm gi`o t}` Aiun`o |iam ie xfm|m clxnunxnm| cwc~ etiaxfm gctom dc`j| wngg giwmt |~|xmanl tn|j Xfm en`c`lncg ltn|n| ie 422?!422> n| c rmtemlx mvcargm

    ie xfm rtidgma| c||ilncxmh wnxf fcun`o xfm|m clxnunxnm| li`lm`xtcxmh wnxfn` k}|x c emw enta|

    \iam fcum mvrtm||mh li`lmt` xfcx actjmx acjn`o clxnunxnm| wngg aium xi xfm |fchiw| ie xfmdc`jn`o |~|xma \rmlnenlcgg~' xfn| |~|xma ie en`c`lncg n`|xnx}xni`|' |i!lcggmh |fchiw dc`j|'rmteita| e}`lxni`| gnjm dc`j| d}x xcjm xfm eita ie ixfmt en`c`lncg enta| it m`xnxnm| Xfm|men`c`lncg n`|xnx}xni`| dittiw |fitx!xmta n` tiggiumt hmdx actjmx|' gmumtcom |no`nenlc`xg~' c`h gm`hc`h n`um|x n` gi`omt!xmta c`h nggns}nh c||mx| C| fc| dmm` hil}am`xmh' xfm otiwxf ie |fchiwdc`jn`o iumt xfm gc|x 4= ~mct| fc| dmm` mvxtcithn`ct~ tmgcxnum xi xfm otiwxf n` hmri|nx| c`h' eitxfm ai|x rctx' wc| }`tmo}gcxmh gmchn`o n`xi xfm ltn|n| D}x xfn| n| `ix c` cto}am`x eit |}d|nhn{n`oc`h li`lm`xtcxn`o xfm|m clxnunxnm| wnxfn` xfm |~|xmanlcgg~ tn|j~ dc`jn`o |mlxit N`|xmch' xi xfmmvxm`x xfm|m e}`lxni`| omx xcjm` i` d~ |fchiw dc`j|' |fchiw dc`j| |fi}gh dm |}dkmlx xi gnjmwn|m|}rmtun|it~ tmo}gcxni`

    N` xmta| ie fiw xfm dc`jn`o |mlxit anofx muigum' fn|xit~ rtiunhm| c` naritxc`x gm||i`\rmlnenlcgg~' xfm Ogc||!\xmcocgg Clx eitlmh xfm hn||ig}xni` ie xfm }`numt|cg dc`j| ! eit mvcargm'xfm dtmcj}r ie KR Aitoc` n`xi xfm Aitoc` Dc`j c`h Aitoc`' \xc`gm~ % Liarc`~ Li`xn`m`xcgM}tirm' n` li`xtc|x' m`ocomh n` `i |}lf e}`lxni`cg |mrctcxni` c`h gctomg~ li`xn`}mh wnxf xfm}`numt|cg dc`jn`o xtchnxni` Xfm ]`nxmh Jn`ohia wm`x nx| iw` wc~ wnxf c liaamtlncg dc`jn`o|xt}lx}tm lm`xmtmh i` c |fitx gn|x &hmxmtan`mh d~ xfm Dc`j ie M`ogc`h. ie r}dgnlg~ gn|xmh lgmctn`odc`j| c`h c gi`o xtchnxni` n` xfm |ml}tnxnm| |mlxit ie |n`ogm!lcrclnx~ kiddmt| &hmcgmt|.' dtijmt|'c`h amtlfc`x dc`j| _nxfi}x cllm|| xi xfm actjmx| eit hmri|nx| c`h liaamtlncg gic`|' d}xrtixmlxmh etia liarmxnxni` d~ liaamtlncg dc`j|' ]\ n`um|xam`x dc`j| |fctm ie en`c`lncgn`xmtamhncxni` otmw tcrnhg~ c| en`c`lncg egiw| rtiotm||numg~ |fnexmh xi xfm en`c`lncg actjmx|Xfm~ n` x}t` fch c otmcx hmcg xi hi wnxf cllmgmtcxn`o xfn| rtilm|| Liaamtlncg rcrmt actjmx|'fnof!~nmgh |ml}tnxnm|' c||mx |ml}tnxn{cxni`|' ai`m~ actjmx a}x}cg e}`h|' c`h |nangct n``iucxni`|wmtm n` rctx xfm rtih}lx| ie n`um|xam`x dc`j| |}llm||e}g n`l}t|ni`| n`xi xfm actjmx |fctm ieltmhnx n`|xnx}xni`|

    D~ xfm 3>62|' xfm ]\ en`c`lncg |~|xma fch dmliam fmcung~ actjmx hian`cxmh wfngm ixfmten`c`lncg |~|xma| tmacn`mh hian`cxmh d~ }`numt|cg dc`j| Eit mvcargm' gilcg dc`j| n`

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    11/21

    li`xn`m`xcg M}tirm wmtm |xti`og~ tm|n|xc`x xi lc``ndcgn{cxni` ie rtienxcdgm d}|n`m|| cx fiam_fngm xfn| |xt}lx}tcg hneemtm`lm ac~ fcum fch |iamxfn`o xi hi wnxf c rmt|n|xm`xg~ fnofmt ]\tcxm ie mli`ianl otiwxf h}tn`o xfm 3>62| c`h 3>>2|' xfm |i!lcggmh C`ogi!\cvi` en`c`lncgctlfnxmlx}tm wc| cto}cdg~ aitm meenlnm`x' aitm hn|lnrgn`mh' c`h aitm n``iucxnum xfc` xfm dc`j!hian`cxmh |~|xma ie li`xn`m`xcg M}tirm Ne xt}m' xfm` xfm Ogc||!\xmcocgg gmon|gcxni` ac~ fcum

    rcnh fc`h|iam otiwxf hnunhm`h| eit iumt fcge c lm`x}t~' hnunhm`h| xfcx anofx fcum dmm` eitoi`mne xfm ]`nxmh \xcxm| fch rmt|n|xmh wnxf c }`numt|cg dc`jn`o aihmg cexmt 3>. cto}m| xfcx' wfngm hnumt|nenlcxni`acjm| n`hnunh}cg dc`j hmec}gx &c`h hn|xtm|| li|x|. gm|| gnjmg~' nx clx}cgg~ n`ltmc|m| xfm gnjmgnfiihie |~|xmanl tn|j &\mm cg|i Etmnvc|' Gitc`xf' c`h Aittn|i` 422?. Tmlm`x marntnlcg witj|}rritx| xfn| xfmit~ Eit mvcargm' Hm Ki`ofm &422>. hil}am`x| xfcx xfm xcng dmxc| ie hnumt|nenmhen`c`lncg n`|xnx}xni`| ctm fnofmt c`h xfmtmeitm xfm|m enta| ltmcxm aitm |~|xmanl tn|j N` c |mtnm| iercrmt|' Hm^i}`o c`h Tigc`h &4223.' \xntif &4228' 4225.' c`h \xntif c`h T}adgm &4225. en`hxfcx aiumam`x cwc~ etia xtchnxni`cg dc`jn`o clxnunxnm| xiwcth ixfmt en`c`lncg |mtunlm| n`ltmc|m|xfm uigcxngnx~ c`h actjmx tn|j ie xfm enta| Xfn| witj cto}m| xfcx xfm li|x| aitm xfc` i}xwmnofxfm dm`menx| ie hnumt|nenlcxni`

    Xfmtm n| c hmdcxm cdi}x xfm dm`menx| ie gctom liargmv en`c`lncg n`|xnx}xni`| c| nx rmtxcn`| ximli`ianm| ie |lcgm Xfm cto}am`x eit |~`mtonm| fc| |iam oti}`hn`o Eit mvcargm' ac`~c`cg~|x| wi}gh cto}m xfcx nx n| naritxc`x eit enta| xfcx ctm clxnum n` xfm rtnact~ actjmx eit|ml}tnxnm| &nm' }`hmtwtnxn`o. xi dm naritxc`x rctxnlnrc`x| n` xfm |mli`hct~ actjmx &nm' hmcgmt|.@mumtxfmgm||' xfm marntnlcg munhm`lm tmacn`| hmlnhmhg~ anvmh @ixcdg~' Gcmum` c`h Gmun`m

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    12/21

    &422?. tmritx munhm`lm xfcx li`xtchnlx| xfm mvn|xm`lm ie wnhm!|lcgm |~`mtonm| n` gctom dc`j| n` xfmdc`jn`o |mlxit Xfm~ cto}m xfcx xfmtm n| c en`c`lncg li`ogiamtcxm hn|li}`x: n` ixfmt with|' xfmwfigm n| witxf gm|| xfc` xfm |}a ie xfm rctx| \mm cg|i Hmgi`o &4223.' wfi rmteita| c` mum`x|x}h~ i` hnumt|ne~n`o dc`j amtomt| N` c |x}h~ xfcx oim| dm~i`h dc`j| c`h giij| cx cgg en`c`lncgn`xmtamhnctnm|' \lfanh c`h _cgxmt &422>. hil}am`x |nangct munhm`lm N`xmtm|xn`og~' xfm~ en`h c

    rtman}a eit xfm umt~ gctom enta|' n`hnlcxn`o xfcx xfmtm n| ai|x gnjmg~ c xii!dno!xi!ecng o}ctc`xmmxfcx |}rritx| xfm actjmx ucg}m ie xfm|m enta| Xfmtmeitm' xfm tmc|i` eit xfm otiwxf n` \NEN| ac~|narg~ dm h}m xi xfm dmgiw!actjmx li|x ie en`c`ln`o xfti}of xfm lm`xtcg dc`j it r}dgnlo}ctc`xmm| Etia c |ilnmxcg rin`x ie unmw' xfm dm`menx| xi \NEN| ie c xii!dno!xi!ecng o}ctc`xmm ctmlgmctg~ `ix c ucgnh tmc|i` xi irri|m tmn`|xnx}xni` ie |iam eita ie Ogc||!\xmcocgg |}lf c| xfmUigljmt t}gm' |n`lm xii!dno!xi!ecng |xc`hn`o m`li}tcom| aitcg fc{cth

    N` li`xtc|x' Dcmgm' Hm Ki`ofm' c`h Uc`hmt Um``mx &422?. c`h Mg|c|' Fcljmxfcg' c`h Fig{fc}|mt&422>. rtiunhm munhm`lm xfcx xfm gctom dc`j aihmg him| nartium dc`j rtienxcdngnx~' c`h om`mtcgg~cto}m xfcx xfm|m ocn`| ctm h}m xi mli`ianm| ie |lcgm Xfm tmc|i`| eit xfm hneemtm`x en`hn`o| lc` dmcxxtnd}xmh xi dixf hneemtm`x hcxc |i}tlm| c`h hneemtm`x amxfihigionm| N` xfn| wfnxm rcrmt' N ca

    `ix oin`o xi dm cdgm xi tm|igum xfn| l}ttm`x hmdcxm N`hmmh' xfm tmlm`x |x}hnm| anttit xfm en`hn`o|ie xfm |}tum~ ctxnlgm d~ Dmtomt c`h F}arftm~ &3>>?. |iam 3= ~mct| mctgnmt' wfnlf cto}mh xfmtmwc| `i rtmhian`c`lm ie munhm`lm mnxfmt eit it cocn`|x mli`ianm| ie |lcgm n` xfm en`c`lncg |mlxit

    _fcx n| gm|| li`xtiumt|ncg n` xfm gnxmtcx}tm' fiwmumt' n| xfcx xfm mvrc`|ni` xi a}gxnrgm e}`lxni`|'xfm gctom' liargmv dc`j aihmg' rtih}lm| otmcxmt |~|xmanl tn|j C| `ixmh cdium' xfmtm n| `iw crgmxfitc ie tm|mctlfn`lg}hn`o Clfct~c' Dtiw`gmm|' M`ogm' Ectc{ac`h c`h Tnlfcth|i` &4232.'Hm^i}`o c`h Tigc`h &4223.' \xntif &4228' 4225.' \xntif c`h T}adgm &4225.' Hm Ki`ofm &422>.'c`h mum` rcrmt| gii|mg~ n` |}rritx ie xfm gctom dc`j aihmg |}lf c| Dcmgm' Hm Ki`ofm' c`hUc`hmt Um``mx &422?.xfcx en`h| xfm gctom dc`j aihmg aitm tn|j~ Xfn| ltmcxm| c |xti`omli`ianl lc|m eit |iam eita ie tmx}t` xi Ogc||!\xmcocgg c`h e}`lxni`cg |mrctcxni`' xfm UigljmtT}gm dmn`o i`m |}lf mvcargm

    U. _fcx Eita \fi}gh xfm Uigljmt T}gm Xcjm9Rc}g Uigljmt fc| cto}mh eit c a}lf |nargmt dngg xfc` n| l}ttm`xg~ dmn`o rtiri|mh Fn| dc|nl nhmcn| xfcx xfm Uigljmt t}gm wi}gh dc` rtirtnmxct~ xtchn`o c`h acjm xfm lfnme mvml}xnum c`h enta|

    Dicth ie Hntmlxit| tm|ri`|ndgm eit liargnc`lm Ne xfm dc`j| hnh `ix liarg~ wnxf xfm |rntnx iexfm t}gm' xfm` xfmtm |fi}gh dm |xti`o tmo}gcxit~ clxni` N dmgnmum Rc}g Uigljmt n| tnofx

    Nx wi}gh dm c an|xcjm xi acjm xfm Uigljmt t}gm n`xi c liargmv |mx ie |rmlnenl t}gm| xfcx dc`j|a}|x eiggiw Xfm tmc|i`| ctm |xtcnofxeitwcth Ent|x' i`lm xfm |mx ie t}gm| ctm wtnxxm`' nx wi}gh dm|xtcnofxeitwcth eit dc`j| c`h \NEN| xi lntl}aum`x xfm|m t}gm| iumt xnam En`c`lncg actjmx| ctmh~`canl wnxf li`xn`}i}| en`c`lncg n``iucxni`| I`m i`g~ fc| xi giij cx xfm wc~ xfm mumt aitmliargmv lcrnxcg tmo}gcxni` t}gm| ie Dc|mg NN wmtm mvrginxmh n` xfm ai|x tmlm`x en`c`lncg ltn|n|Dc|mg NN wc| `ix |mx }r wnxf xfn| n` an`h' ~mx xfn| wc| xfm i}xliam \mli`h' c |xtnlxg~ t}gm|!dc|mhcrrticlf rtiunhm| ecg|m liumt eit tmo}gcxit| Tmo}gcxit| lc` lfmlj xfm div xfcx xfm t}gm fc|dmm` chfmtmh xi tcxfmt xfc` |}rmtun|n`o xfm en`c`lncg n`|xnx}xni` aitm dtichg~ @}amti}|mvcargm| etia xfm ai|x tmlm`x en`c`lncg ltn|n| mvn|x' n`lg}hn`o tmo}gcxit| rtiunhn`o c lgmc` dngg ie

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    13/21

    fmcgxf xi Ec``nm Acm c`h Etmhhnm Acl |fitxg~ dmeitm dmn`o dti}ofx n`xi li`|mtucxit|fnr: xfmgctom Dmgonc` dc`j Hmvnc |litn`o fnof i` |xtm|| xm|x| k}|x dmeitm ecngn`o: M}tirmc` dc`j| d}ngh}r ie mvri|}tm xi CNOER| LH\ eit r}tmg~ tmo}gcxit~ lcrnxcg tmc|i`|: Gmfac` Dtixfmt| }|m ietmri 32= xtc`|clxni`| xi |fiw giwmt gmumtcom: c`h |i eitxf

    Rc}g Uigljmt| liaam`x| |}oom|x xfcx fm fch c aitm rtn`lnrgm|!dc|mh t}gm n` an`h: n` eclx' wfm`c|jmh h}tn`o \m`cxm fmctn`o| fiw fm wi}gh nhm`xne~ |}lf xtchn`o' Uigljmt tmrgnmh xfcx nx| gnjmrit`iotcrf~~i} j`iw nx wfm` ~i} |mm nx Xfm n`x}nxnum hmen`nxni` n| xfcx rtirtnmxct~ xtchn`oli`|xnx}xm| c`~ xtchn`o li`h}lxmh d~ xfm enta eit nx| iw` clli}`x

    Xfm Hihh!Etc`j Clx |xcxm| xfcx; Xfm xmta rtirtnmxct~ xtchn`o' wfm` }|mh wnxf tm|rmlx xi cdc`jn`o m`xnx~ it `i`dc`j en`c`lncg liarc`~ |}rmtun|mh d~ xfm Dicth' amc`| m`ocon`o c| crtn`lnrcg eit xfm xtchn`o clli}`x ie xfm dc`jn`o m`xnx~ it `i`dc`j en`c`lncg liarc`~ |}rmtun|mhd~ xfm Dicth n` c`~ xtc`|clxni` xi r}tlfc|m it |mgg' it ixfmtwn|m cls}ntm it hn|ri|m ie' c`~|ml}tnx~' c`~ hmtnucxnum' c`~ li`xtclx ie |cgm ie c liaaihnx~ eit e}x}tm hmgnumt~' c`~ irxni` i`c`~ |}lf |ml}tnx~' hmtnucxnum' it li`xtclx' it c`~ ixfmt |ml}tnx~ it en`c`lncg n`|xt}am`x xfcx xfm

    crrtirtncxm Emhmtcg dc`jn`o com`lnm|' xfm \ml}tnxnm| c`h Mvlfc`om Liaan||ni`' c`h xfmLiaaihnx~ E}x}tm| Xtchn`o Liaan||ni` ac~ . . . hmxmtan`m.

    _fngm mvmarxni`| eit mvlg}hn`o l}|xiamt!tmgcxmh xtchn`o c`h fmhon`o ctm gionlcg' xfm~ ltmcxm cotc~ ctmc eit nargmam`xn`o xfm t}gm Eit mvcargm' wfm` c gctom dc`j clx| c| n`xmtamhnct~dmxwmm` d}~mt| c`h |mggmt|' m|rmlncgg~ eit gm|| gns}nh |ml}tnxnm|' xfm enta wngg iexm` dm mvri|mh xii`m |nhm ie xfm xtc`|clxni` N` eclx' c `}admt ie `itacg actjmx! c`h lgnm`x itnm`xmh xtc`|clxni`|'|}lf c| xtchn`o n` eitmno` mvlfc`om' envmh!n`liam |ml}tnxnm|' c`h hmtnucxnum|' c| wmgg c| |mtunlm|gnjm dtnhom en`c`ln`o' rtnam dtijmtcom' c`h xfm gnjm' anofx tm|}gx n` xfm enta xmlf`nlcgg~ xtchn`oi` nx| iw` clli}`x d}x hin`o |i xi |mtum lgnm`x `mmh| Xfn| otc~ ctmc cg|i n`unxm| ac`nr}gcxni`_fcx n| xi rtmum`x c dc`j etia cll}a}gcxn`o c gctom mvri|}tm n` c onum` |ml}tnx~ it hmtnucxnum n`

    mvrmlxcxni` ie c` mum`x}cg l}|xiamt hmac`h eit xfm c||mx9 Fiw ctm tmo}gcxit| xi hn|xn`o}n|fdmxwmm` nhm`xnlcg xtchm| wfmtm xfm n`xm`x ie i`m n| lgmctg~ l}|xiamt!htnum` c`h xfm n`xm`x ie xfmixfmt n| rtirtnmxct~9 \fi}gh xfmtm dm c xnam gnanx |mx i` fighn`o| tmgcxmh xi l}|xiamt!tmgcxmhxtchn`o9 \fi}gh xfmtm dm xfm tms}ntmam`x xfcx xfm cootmocxm actjmx mvri|}tm c||ilncxmh wnxfxfm|m fighn`o| dm fmhomh9 Fiw lc` |}lf fighn`o| dm hneemtm`xncxmh etia xfi|m tmgcxmh xi r}tmxtchn`o dmx| n` xfm tmcg witgh9

    Etia a~ rmt|rmlxnum' c rtn`lnrgm|!dc|mh crrticlf wi}gh dm xfm dm|x wc~ xi chhtm|| xfm|m n||}m|

    Ent|x' c| hmxcngmh n` \mlxni` NN cdium' lmtxcn` x~rm| ie c||mx fighn`o|' |}lf c| xfi|m rti`m xitmo}gcxit~ ctdnxtcom' lctt~ xtchm| c`h en`c`lncg o}ctc`x~ n`|}tc`lm' |fi}gh dm dc``mh eit dc`j|c`h lmtxcn`g~ tm|xtnlxmh eit \NEN| Ne c dc`j wc`xmh xi m`ocom n` xfm|m clxnunxnm| eit l}|xiamt|c`h)it fmhon`o ie xfm dc`j| iw` tn|j|' xfm` xfm i`}| wi}gh dm i` xfm dc`j xi li`un`lm xfmtmo}gcxit xfcx &n. nx wc| `mlm||ct~ c`h mli`ianlcgg~ naritxc`x' c`h &nn. nx hnh `ix nari|m}``mlm||ct~ |~|xmanl tn|j

    \mli`h' xi xfm mvxm`x xfmtm n| c en`m gn`m dmxwmm` rtn`lnrcg xtchn`o c`h actjmx acjn`o' xfm dm|xcrrticlf wi}gh dm xi hm|ltndm |cem fctdit| xi xfm Uigljmt t}gm' n` ixfmt with|' rtirtnmxct~ c`hfmhom clxnunxnm| cgwc~| rmtanxxmh wnxfn` xfm t}gm C`~ clxnunx~ i}x|nhm xfm|m |cem fctdit| wi}gh

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    14/21

    tms}ntm rmtan||ni` d~ xfm dc`j| &it `i`!dc`j \NEN|. tmo}gcxit Cocn`' a~ unmw n| xfcx xfn| |cemfctdit!crrticlf n| ai|x n` gn`m wnxf itnon`cg n`xm`x ie xfm Uigljmt t}gm

    _fcx wi}gh |iam ie xfm|m |cem fctdit| giij gnjm n` rtclxnlm9 Fmtm ctm |iam mvcargm|;

    3

    C| gi`o c| xfm enta| cootmocxm oti|| &nm' }`fmhomh. n`um`xit~ ie c||mx| n| dmgiw c|rmlnenmh etclxni` &hm`ixm J-. ie xfm enta| lcrnxcg' xfmtm wi}gh dm xfm rtm|}arxni`xfcx xfm xtchn`o ri|nxni`| ctm actjmx acjn`o Ne xfm enta wn|fm| xi figh n`um`xit~cdium xfm etclxni`' xfm` xfm i`}| wi}gh dm i` xfm dc`j xi li`un`lm xfm tmo}gcxit xfcxxfm m`xntm n`um`xit~ &n. n| `mlm||ct~ c`h mli`ianlcgg~ naritxc`x eit actjmx acjn`o'c`h &nn. him| `ix nari|m }``mlm||ct~ |~|xmanl tn|j

    4 Ne xfm enta| cootmocxm oti|| n`um`xit~ ie c||mx| n| dmgiw J- ie xfm enta| lcrnxcg'xfm` xfmtm wi}gh dm c` chhnxni`cg tm|xtnlxni` xfcx xfm enta| cootmocxm `mx &nm'fmhomh. n`um`xit~ ie c||mx| cg|i gnm dmgiw c` mum` |acggmt etclxni` &hm`ixm J+-. iexfm enta| lcrnxcg N` ixfmt with|' ne oti|| n`um`xit~ wmtm cdium J+- ie lcrnxcg' xfmtm|nh}cg ritxni` ie xfm enta| n`um`xit~ a}|x dm fmhomh Ne xfm enta wn|fm| xi figh

    }`fmhomh n`um`xit~ cdium xfm etclxni`' xfm` xfm i`}| wi}gh dm i` xfm dc`j xili`un`lm xfm tmo}gcxit xfcx xfm fmhom n| }``mlm||ct~

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    15/21

    oti|| c`h `mx n`um`xit~ ie tmc|i`cdg~ gns}nh c||mx| wnxfn` c etclxni` ie nx| lcrnxcg' xfm` xfmen`c`lncg enta wi}gh dm etmm xi acjm actjmx| c`h xcjm gnanxmh rtirtnmxct~ dmx| \iam gctom dc`j|wngg lfii|m xi itoc`n{m xfmnt d}|n`m|| cgi`o xfm|m gn`m| Ixfmt dc`j| anofx lfii|m xi acjmactjmx| n` aitm nggns}nh c||mx| c`h)it oi dm~i`h xfmnt n`um`xit~ gnanx| Xfm|m dc`j| wi}gh dm|}dkmlx xi otmcxmt tmo}gcxit~ iumt|nofx c`h ac~ it ac~ `ix omx rmtan||ni` xi mvrc`h xfmnt

    clxnunxnm| dm~i`h xfm di}`hctnm| ie xfm Uigljmt t}gm

    C. Xfm Uigljmt T}gm' Ne Crrgnmh Rtnit xi xfm En`c`lncg Ltn|n| ie 422?!422>Nx fc| dmm` cto}mh xfcx xfm Uigljmt t}gm wi}gh `ix fcum dmm` }|me}g n` xfm t}`!}r xi xfm en`c`lncgltn|n| ie 422?!422> n` xfcx rtn`lnrcg xtchn`o wc| `ix c tiix lc}|m ie xfm ltn|n| _fngm xfn|cto}am`x tmocthgm|| him| `ix narg~ xfcx xfm Uigljmt t}gm n| `ix c }|me}g xiig eit ac`con`o|~|xmanl tn|j' xfm cto}am`x cg|i fcrrm`| `ix xi dm xt}m Li`|nhmtcdgm gi||m| ie gctom liargmvdc`j| c`h ixfmt \NEN| ill}ttmh n` xfmnt fighn`o| ie c||mx!dcljmh |ml}tnxnm|' m|rmlncgg~ xfi|m xnmhxi tm|nhm`xncg aitxocom| Nx n| xt}m xfcx' eit ac`~ ie xfm|m enta|' xfmnt n`nxncg mvri|}tm tmgcxmh xixfmnt }`hmtwtnxn`o c`h wctmfi}|n`o ie xfm|m |ml}tnxnm| Xfn| d}|n`m|| aihmg' fiwmumt' aitrfmh

    n`xi xfm|m enta| meemlxnumg~ fighn`o c gctom uig}am ie xfm|m |ml}tnxnm| mnxfmt i`! it iee!dcgc`lm|fmmx Xfm munhm`lm |fiw| xfcx |iam ie xfn| dmfcunit wc| lgmctg~ wngge}g c`h |narg~ c lctt~ xtchmn` hn|o}n|m Fiwmumt' mum` ne xfm|m en`c`lncg enta| wmtm |x}lj fighn`o xfm|m |ml}tnxnm| dmlc}|mxfmtm wc| gnxxgm hmac`h n` lcrnxcg actjmx| eit xfma' wf~ |fi}gh en`c`lncg enta| }`hmt xfm |cemx~`mx dm ltmcxn`o mvlm|| gns}nhnx~ c`h |~|xmanl tn|j9 Xfm rtn`lnrgm|!dc|mh Uigljmt t}gm wnxf |cemfctdit| wi}gh fcum otmcxg~ tm|xtnlxmh xfm|m clxnunxnm| mnxfmt xfti}of c` i}xtnofx dc` i` ctmlio`n{mh lctt~ xtchm it fcun`o xfm tmo}gcxit s}m|xni` xfm tn|j ie xfm|m clxnunxnm| Xfcx n|'en`c`lncg enta| wi}gh fcum `mmhmh xi |mmj rmtan||ni` xi oi dm~i`h xfm |cem fctdit c`h otmcxg~mvrc`h xfmnt n`um`xit~ fighn`o| \}lf c tms}m|x wi}gh fcum dmm` c tmh egco c| xfm enta wi}gh dmn`ltmc|n`o xfmnt dcgc`lm |fmmx wnxf gnxxgm it `i chhnxni`cg lcrnxcg A}lf ie xfm c`cg~|n| dmgiw n|xcjm` etia Lgmam`xn' Liigm~' Tnlfcth|i` c`h _cgxmt &422>.

    N` xfm |}aamt ie 422=' i`m ie xfm ackit rgc~mt| n` |}drtnam aitxocom liggcxmtcgn{mh hmdxidgnocxni`| &LHI|.' ]D\' tcarmh }r nx| LHI wctmfi}|m d}|n`m||

    =N` xfn| d}|n`m||' ]D\ wi}gh

    r}tlfc|m tm|nhm`xncg aitxocom dcljmh |ml}tnxnm| &TA\. rtnactng~ achm }r ie |}drtnamaitxocom|' fi}|m xfma n` nx| LHI wctmfi}|m' rtmrctm xfma eit |ml}tnxn{cxni`' c`h xfm` |mgg xfma}gxn!xtc`lfm LHI| n` xfm actjmxrgclm ]D\| LHI hm|j tmlmnumh |xt}lx}tn`o emm| i` xfm`ixni`cg ucg}m ie xfm hmcg tc`on`o etia

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    16/21

    figh c| a}lf ie xfm riig ie |}drtnam gic`| c| ri||ndgm c`h |xngg acn`xcn` xfm CCC tcxn`o onum`d~ tcxn`o com`lnm| Etia fighn`o cgai|x `i`m ie xfm|m |ml}tnxnm| n` Emdt}ct~ 4225' xfm LHIhm|j wc| fighn`o iumt (=2 dnggni` n` \mrxmadmt 422? Xfm acn` tmc|i` eit tmxcn`n`o xfm|mxtc`lfm| i` xfmnt diij| wc| xfcx xfm|m |ml}tnxnm| ieemtmh c ~nmgh cdium ]D\| n`xmt`cg e}`hn`o

    tcxm wfnlf fiumtmh cti}`h GNDIT' ~nmghn`o c` naamhncxm i`oin`o rtienx

    Aitmiumt' dmlc}|m xfm|m |ml}tnxnm| wmtm tcxmh CCC ' xfm~ dctmg~ tmon|xmtmh i` ]D\| ucg}m cxtn|j it |xtm|| xm|x| mum` wfm` xixcgg~ }`fmhomh5 Xf}|' xfm mvlm|| ~nmgh wc| xtmcxmh c| r}tm cgrfcC| c tm|}gx ie xfn| r}tm cgrfc' xfmtm wmtm `i cootmocxm `ixni`cg gnanx| rgclmh i` xfm LHIwctmfi}|m Xf}|' mumt~ mvxtc higgct ie LHI| tmxcn`mh n`ltmc|mh xfm hm|j| rtienx Aitmiumt'dmlc}|m xfm ]D\ liarm`|cxni` |xt}lx}tm hnh `ix hneemtm`xncxm dmxwmm` rtienx| hmtnumh etia c giwli|x ie e}`hn`o umt|}| xfm om`mtcxni` ie xt}m mvlm|| tmx}t` &nm' cgrfc.' xfm hm|j| liarm`|cxni`

    wc| hntmlxg~ gn`jmh xi xfm |n{m ie xfm LHI| aitxocom diij Xfmtm wc| `i gns}nhnx~ rtman}alfctomh xfm oti}r Xfcx n|' xfmtm wc| gnxxgm it `i hneemtm`xncxni` dmxwmm` gns}nh c`h nggns}nh c||mx|mum` xfi}of xfmtm ctm ac`~ mvcargm| ie cgai|x nhm`xnlcg |ml}tnxnm| ieemtn`o hneemtm`x ~nmgh| n`xfm actjmx| &mo' iee!xfm!t}` umt|}| i`!xfm!t}` xtmc|}tnm|.

    Xfm|m eclx| amc`x xfcx xfm LHI hm|j fch xfm n`lm`xnum xi otiw xfm dcgc`lm |fmmx eit LHI| c|gctom c| ri||ndgm dmlc}|m' d~ li`|xt}lxni`' xfmnt di`}|m| wmtm xnmh xi n`|xc`x rtienx| wnxf `itmlio`nxni` ie c`~ tn|j Xfn| otiwxf li`xn`}mh mum` h}tn`o xfm ent|x fcge ie 422? c| |}drtnamgm`hmt| wmtm oin`o dc`jt}rx c`h fmhom e}`h| wmtm tmritxn`o gi||m| N` eclx' ]D\ |f}x hiw` i`mie nx| iw` irmtcxni`|' Hnggi` Tmch Lcrnxcg Ac`comam`x' n` Ac~ 422? eit gi||m| n` xfmnt|}drtnam n`um|xam`x ritxeigni N` Actlf 422?' xfm Xtmc|}t~ oti}r wnxfn` ]D\' cgctamh cx xfmxtmam`hi}| otiwxf ie ]D\| dcgc`lm |fmmx m|rmlncgg~ n` tmgcxnumg~ nggns}nh CD\|' cto}mh eit cgnanx i` nggns}nh c||mx|' c fcntl}x e}`hn`o aihmg &n` wfnlf nggns}nh c||mx| wi}gh `i gi`omt omx|fitx xmta e}`hn`o.' c`h c` iumtcgg etmm{m i` xfmnt dcgc`lm |fmmx Xfn| lcgg wm`x }`c`|wmtmh

    R}xxn`o c|nhm xfm n||}m ie wfmxfmt xfm|m |ml}tnxnm| wmtm xt}g~ CCC n` s}cgnx~' xfmtm n| `i hi}dxxfcx xfmnt }`hmtg~n`o tn|j wc| umt~ c|~aamxtnl Xfcx n|' xfm |ml}tnxnm| wi}gh rc~ c rtman}acdium GNDIT n` ai|x |xcxm| ie `cx}tm' d}x n` xfm tctm mum`x xfcx xfmtm wmtm |}d|xc`xncg hmec}gx|c`h giw tmliumtnm|' xfm~ wi}gh omx fnx Fn|xitnlcgg~' xfn| tctm mum`x wi}gh ctn|m i`g~ ne xfm}`hmtg~n`o liggcxmtcg &nm' fi}|m rtnlm|. emgg htcacxnlcgg~ it xfmtm wc| c |fctr mli`ianlhiw`x}t` &nm' c| n` rtmuni}| tmlm||ni`|. N` en`c`lm xmta|' h}m xi xfm rtnitnx~ |xt}lx}tm ie xfmlgcna|' xfm fighmt| ie xfm |m`nit xtc`lfm wmtm m||m`xncgg~ n`um|xmh n` c tn|j!etmm c||mx' gnjmGNDIT' wfngm |na}gxc`mi}|g~ wtnxn`o c wc~ i}x!ie!xfm!ai`m~ r}x irxni` i` xfm actjmx

    ?

    Ne xfm ceitmam`xni`mh hm|ltnrxni` ie xfm oiumt`c`lm &it gclj xfmtmie. ie xfm LHI hm|j cx ]D\wc| c` cdmttcxni`' xfm` xfmtm wi}gh dm gm|| ie c` n||}m ]`eitx}`cxmg~' nx |mmamh xi dm xfm `itah}tn`o xfn| rmtnih c`h m`hmanl xi ac`~ enta|

    6\iam e}txfmt mvcargm|;

    Ent|x' iumt xfm rmtnih 422=!422?' Lnxnoti}r wc| i`m ie xfm gctom|x LHI n||}mt| &tc`jmhent|x n` 422= wnxf (46 dnggni`' xfnth n` 4225 wnxf (

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    17/21

    (82 dnggni`. Xfmtm ctm tmactjcdgm |nangctnxnm| xi ]D\; &n. d~ xfm xfnth s}ctxmt' Lnxnoti}rfch cll}a}gcxmh iumt (== dnggni` ie CCC!tcxmh fnofmt xtc`lfm aitxocom|' &nn. xfmtm wc|`i lgmct |mrctcxni` dmxwmm` tn|j ac`comam`x c`h xtchn`o n` xfm envmh n`liam oti}r'gmchn`o xi an|cgno`mh n`lm`xnum|' &nnn.' cllithn`o xi xfm @^ Xnam|' hm|rnxm xfmnt |n{m' ~mx}|n`o xfm tcxn`o com`lnm| c| k}|xnenlcxni`' xfm|m |ml}tnxnm| hi `ix |fiw }r i` xfm enta|

    Ucg}m cx Tn|j c`cg~|n|

    >

    ' c`h &nu. xfm LHI oti}r wc| i`m ie xfm fnofm|x rcnh n` xfm enta \mli`h' h}tn`o xfn| |cam rmtnih' Amttngg G~`lf cg|i ri}tmh n`xi xfn| |mlxit' tc`jn`o

    |mli`h n` LHI n||}c`lm n` 422= wnxf (4? dnggni`' ent|x n` 4225 wnxf (=8 dnggni` c`h|mli`h n` 422? wnxf (

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    18/21

    C| rctx ie c` meeitx xi |mtni}|g~ chhtm|| mvlm||num |~|xmanl tn|j' N en`h xfm gionl ie gnanxn`ooiumt`am`x o}ctc`xmm| xi litm dc`jn`o clxnunxnm| c`h |motmocxn`o `i`dc`jn`o tn|j!xcjn`od}|n`m||m| xi dm e}`hcam`xcgg~ |i}`h c`h n` xfm r}dgnl n`xmtm|x Xfn| crrticlf n| cjn` xi xfcx iexfm 3>

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    19/21

    Tmemtm`lm|;

    Clfct~c' Untcg U' Lftn|xnc` Dtiw`gmm|' Tidmtx E M`ogm' c`h Ectfc`o Ectc{ac`h c`h AcxxfmwTnlfcth|i`' 4232' Amc|}tn`o \~|xmanl Tn|j' Lfcrxmt 5 ieTmo}gcxn`o _cgg \xtmmx; Xfm Hihh!Etc`j Clx c`h xfm @mw Ctlfnxmlx}tm ie Ogidcg En`c`lm' Untcg U Clfct~c' Xfiac| Liigm~'

    Acxxfmw Tnlfcth|i` c`h N`oi _cgxmt' mhnxit|' @mw ^itj ]`numt|nx~ \xmt` \lfiig ie D}|n`m||'Kif` _ngm~ % \i`|

    Clfct~c' Untcg U' Xfiac| Liigm~' Acxxfmw Tnlfcth|i` c`h N`oi _cgxmt' 422>' Ac`}eclx}tn`oXcng Tn|j; C Rmt|rmlxnum i` xfm En`c`lncg Ltn|n| ie 422?!422>' Uig 8' Ei}`hcxni`| c`h Xtm`h|n` En`c`lm.

    Clfct~c' Untcg U' Xfiac| Liigm~' Acxxfmw Tnlfcth|i` c`h N`oi _cgxmt' mh| 4232' Tmo}gcxn`o_cgg \xtmmx; Xfm Hihh!Etc`j Clx c`h xfm @mw Ctlfnxmlx}tm ie Ogidcg En`c`lm' Fidijm`' @K;Kif` _ngm~ % \i`|

    Clfct~c' Untcg U' @nt}rcac @}gjct`n c`h Acxxfmw Tnlfcth|i`' 4232' Lcrnxcg' Li`xn`om`xLcrnxcg' c`h Gns}nhnx~ Tms}ntmam`x|' Lfcrxmt 5 ieTmo}gcxn`o _cgg \xtmmx; Xfm Hihh!Etc`j Clxc`h xfm @mw Ctlfnxmlx}tm ie Ogidcg En`c`lm' Untcg U Clfct~c' Xfiac| Liigm~' AcxxfmwTnlfcth|i` c`h N`oi _cgxmt' mhnxit|' @mw ^itj ]`numt|nx~ \xmt` \lfiig ie D}|n`m||' Kif` _ngm~% \i`|

    Clfct~c' Untcg U' Gc||m Rmhmt|m`' Xfiac| Rfngnrri` c`h Acxxfmw Tnlfcth|i`' 4232' Xcvn`o\~|xmanl Tn|j' Lfcrxmt = ie Tmo}gcxn`o _cgg \xtmmx; Xfm Hihh!Etc`j Clx c`h xfm @mwCtlfnxmlx}tm ie Ogidcg En`c`lm' Untcg U Clfct~c' Xfiac| Liigm~' Acxxfmw Tnlfcth|i` c`h N`oi_cgxmt' mhnxit|' @mw ^itj ]`numt|nx~ \xmt` \lfiig ie D}|n`m||' Kif` _ngm~ % \i`|

    Clfct~c' Untcg U' \xnk` uc` @nm}wmtd}tof' Acxxfmw Tnlfcth|i` c`h Gctt~ _fnxm' 4233'O}ctc`xmmh xi Ecng; Ec``nm Acm' Etmhhnm Acl c`h xfm Hmdclgm ie Aitxocom En`c`lm 'Rtn`lmxi`' @K; Rtn`lmxi` ]`numt|nx~ Rtm||

    Dcmgm' Gnmum`' Ignunmt Hm Ki`ofm' c`h T}hn Uc`hmt Um``mx 422? Him| xfm |xilj actjmx ucg}mdc`j hnumt|nenlcxni`9Ki}t`cg ie Dc`jn`o c`h En`c`lm >>424>3 Xfm hian`c`lm ie n`meenlnm`lnm| iumt |lcgm c`h rtih}lxanv mli`ianm| n` dc`jn`oKi}t`cg ie Ai`mxct~ Mli`ianl| 46; 33?386

    Lgmam`xn' Onc` G}lc' Xfiac| E Liigm~' Acxxfmw Tnlfcth|i`' c`h N`oi _cgxmt' 4226'Tmxfn`jn`o Liarm`|cxni` n` En`c`lncg Enta|' Lfcrxmt 6 n` Clfct~c' Untcg U' c`h AcxxfmwTnlfcth|i`' mh| 422>'Tm|xitn`o En`c`lncg \xcdngnx~; Fiw xi Tmrcnt c Ecngmh \~|xma' Fidijm`'@K; Kif` _ngm~ % \i`|

    Liucg' Ki|f}c c`h Kclid K}tmj' 422>' Mli`ianl Lcxc|xtirfm Di`h|' Camtnlc` Mli`ianlTmunmw' >>&

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    20/21

  • 7/31/2019 Why the Volcker Rule is a Useful Tool for Managing Systemic Risk

    21/21

    Rmxmt|m`' Anxlfmgg C c`h Tcof}tca O Tckc`' 3>>8' Xfm Dm`menx| ie Gm`hn`o Tmgcxni`|fnr|;Munhm`lm etia \acgg D}|n`m||Xfm Ki}t`cg ie En`c`lm' Uig 8>' @i 3' rr

    \lfanh' Actj}|' c`h N`oi _cgxmt 422> Hi en`c`lncg li`ogiamtcxm| ltmcxm it hm|xti~ mli`ianlucg}m9Ki}t`cg ie En`c`lncg N`xmtamhncxni` 36 &4.; 3> Hnumt|nenlcxni` cx en`c`lncg n`|xnx}xni`| c`h |~|xmanl ltn|m| Eitxflian`o n`xfmKi}t`cg ie En`c`lncg N`xmtamhncxni`

    _cgxmt' N`oi 4232 Xfm `mw lc|m eit e}`lxni`cg |mrctcxni` n` wfigm|cgm en`c`lncg|mtunlm| Hmrctxam`x ie En`c`lm' \xmt` \lfiig ie D}|n`m||' _itjn`o Rcrmt EN@!2>!3?

    _~ac`' Ignumt' 4233' Xfm Uigljmt T}gm Tm|xtnlxni`| i` Rtirtnmxct~ Xtchn`o; Nargnlcxni`| eitxfm ]\ Litritcxm Di`h Actjmx