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Volcker Rule Finalized With Wall Street Responsible For Judging Compliance

"Big Wall Street banks face an uneasy future after U.S. regulators on Tuesday finalized the Volcker Rule, a measure that attempts to curtail big bets on certain financial instruments. But in a potential concession, the banks themselves largely will be responsible for determining whether they're in compliance.

"As Wall Street, Washington and the lawyers that advise them digested the rule, investors appeared to brush off concerns that the final version would dent banks’ profitability. Share prices of banks seen as most vulnerable to the rule rose.

"Named after former Federal Reserve Chairman Paul Volcker, the idea began in 2010 as a simple effort to ban short-term speculative trading and investments in hedge and private equity funds by financial institutions that enjoy federal deposit insurance. Over the last few years, regulators had struggled to define what constituted speculation and what was merely the accumulation of financial instruments meant to be sold to clients, such as asset managers or other large investors.

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"Regulators largely missed the increasing risk in the financial system that preceded the 2008 crisis and the linkages between institutions that pushed many perilously close to failure when markets began to tank. They also failed to spot or reduce risk-taking at JPMorgan Chase in early 2012, when traders led by the so-called London Whale caused the bank to lose more than $6 billion on wrong-way bets.

“'No one will really know whether regulators, who have failed so abysmally in the past, have learned from the crisis and will start regulating the banks for real by aggressively enforcing the Volcker Rule,' said Dennis Kelleher, president of Better Markets, a nonprofit group that advocates stringent rules on big banks."

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