Inefficiency of the Volcker Rule in Regulating Banking Activity

As a section of Dodd-Frank Act,the Volcker Rule bans proprietary trading for banking entities.In view of the outcome of financial tsunami,US Congress enacted such legislation to restrict proprietary trading activities.However,proprietary trading has moved to less-regulated business sectors,such as hedge funds which may increase overall risk,absent market or regulatory restraint.Since the Volker Rule only focus on proprietary trading,it may neglect the significant problems which truly resulted in the serious financial crisis.The Rule also failed to tackle the long-term commitment which is thought to be one major source of banking losses.In addition,given the difficulties of distinguishing proprietary trading from permitted activities,the Volker Rule probably did not fulfil its regulatory function.For the banking entities,it is important to distinguish between proprietary trading and permitted activities.To be effective,new financial regulation must reflect new relationships in the marketplace,but the Volker Rule fails to reflect the financial reality which requires remedial measures.