banking

Volcker rule: Why it matters to consumers

Promoting bank stability
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Promoting bank stability

The overriding aim of the Volcker rule is to promote stability in the banking system and help to prevent a repeat of the financial crisis in 2008. The near-collapse of Lehman Brothers and American International Group, or AIG, prompted Congress to pass an unprecedented $700 billion government bailout in 2008.

"At the end of the day, what this ought to do for consumers is lower the risk of defaults that we saw and maybe make financial institutions easier to regulate," says David Min, associate director for financial markets policy at the Center for American Progress in Washington, D.C.

By forcing banks to stop trading for their own accounts, the rule will limit the amount of risk these mammoth institutions take on, making another financial scandal less likely. "We won't have this kind of financial blowup again, which is good for everyone," Min says.

"This speculative activity drives a bit of a 'heads I win, tails you lose' approach," he says. If banks must compete based on the banking, checking and lending services they provide -- as opposed to the revenue they can generate from proprietary trading -- consumers should benefit.


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