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IMF Calls Volcker Rule Hard to Enforce and Threat to Liquidity

  • ‘It’s not clear how effective it is,’ says IMF’s Tobias Adrian
  • Maintaining capital buffers is still important, he says
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Volcker Says Fed Shouldn't Rely on a Rule to Set Policy

A U.S. regulation designed to prevent banks from making speculative bets is difficult to enforce and may drain liquidity from the country’s banking system, according to the International Monetary Fund’s top financial-risk official.

The U.S. imposed the so-called Volcker Rule, named after former Federal Reserve Chairman Paul Volcker, after the global financial crisis to discourage banks from taking on too much risk. Part of the Dodd–Frank Act, the regulation restricts federally insured banks from trading securities using their own funds, a practice known as proprietary trading.