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The Volcker Rule: Preventing Financial Crises in the Future?

21.6.2018, Maisteritutkielma

The main research question in the thesis is “Will the Volcker rule prevent financial crises in the future?” Main contribution of the work is to evaluate the effectiveness of the rule aiming to represent and reflect arguments from both sides – the one from regulators and the one from banks and other financial institutions. The thesis has a strong focus on subpart B and especially sections 3–5 of the Volcker rule – proprietary trading, market-making and risk-mitigating hedging.

Further, the work covers handling of affiliates of foreign banking entities together with foreign affiliates of US banking entity that were stated in section 6, other permitted proprietary trading activities. Temporal dimension in the thesis is strongly focused on between 5 years before the recent financial crisis and today – starting from 2002 when seeds for the crisis were planted in terms of subprime products.

The subject is approached by first representing the Volcker rule – focusing especially on the way it was designed to solve previous problems in the financial markets and feedback from the markets. Problematic parts, interpretation issues and possible loopholes are explained in this section. Chapter 3 deals with implementation of the rule and unintended consequences. European versions of the Volcker rule and other international aspects are represented in this chapter. In chapter 4 it is judged whether the Volcker rule will work as planned and possibly prevent financial crises in the future. The starting point is to compare the Volcker rule to the explanations given for the recent financial crisis. Finally, main conclusions of the thesis are summarized in chapter 5.

(Edilex-toimitus)

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