Is Today's Volatility an Echo of 1987?

Volatility -- the rate at which prices move up or down -- has leaped in many security markets recently. The Federal Reserve Bank of St. Louis's Financial Stress Index, whose 18 components include yields on junk and corporate bonds, an index of bond market volatility, and the Standard & Poor's 500 index, is almost at a four-year high.

I believe the restrictions on bank trading imposed by the 2010 Dodd-Frank Act, including the ban on banks' proprietary trading and increased capital requirements, are a key reason, at least in the U.S. Large banks and other financial institutions simply aren't carrying the big trading positions they once did, and therefore, liquidity in many markets has atrophied.