Steven Jacobson is a rising freshman at University of Pennsylvania.
What started as a simple idea outlined in a three-page letter to President Obama mutated into over nine hundred pages of regulations. This, of course, was the Volcker Rule, a key component of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 named after the former chairman of the Federal Reserve. The idea behind ‘Volcker’ was simple—to place heavy sanctions on proprietary trading, which is when a bank trades using its own funds for its own gain. More specifically, it tries to define the role of a bank as a middleman and not a trader for its own benefit.
In theory, this is a great idea. Since the repeal of the Glass-Steagall Act in 1999, trades by banks have become more exotic, more harmful, and more dangerous. It wasn’t proprietary trading that directly caused the financial crisis of 2008, but because it could have a role in future meltdowns, steps to curtail excessive proprietary trading are prudent.
The rule is riddled with loopholes, exceptions, and “permitted activities;” moreover, it is being implemented chaotically by five different agencies within the federal government: the Federal Reserve, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC). Each of these agencies has very different plans, jurisdictions, and resources. The nearly four-digit-page rule is so confusing that the American Bankers Association estimates it will require 6.6 million hours of work to implement the law and an additional 1.8 million hours every year to enforce it. Banks will need 3,000 more workers simply to comply with the law.
“More workers?” one may think. “This law is great—it’s keeping the Wall Street fat cats in check and creating jobs in the process.” But there’s a dark side to this demand for employees as well—the increase in payroll will cause the costs of trading stocks to rise, leading to lower volume of trades and markets that are inefficient. Estimates of the monetary costs of the Volcker rule on banks are unpredictable and range from $350 million to $4.3 billion. However, one thing is certain—the mass pandemonium of banks attempting to follow the rule will cause—indeed, already has caused—compliance costs to skyrocket.
The law is largely ineffective as well. “Here’s the key word in the rules: ‘exemption,’ ” commented former Senator Ted Kaufman (D-DE). “Let me tell you, as soon as you see that, it’s pronounced ‘loophole.’ That’s what it means in English. We’ve been through this before. I know these folks, these Wall Street guys. I went to school with them. They’re smart as hell. You give them the smallest little hole, and they’ll run through it.” 
Lee Shepherd, of Forbes, put it a little more bluntly in a scathing article about the deficiencies of regulations: “Even the dumbest banker can get around the Volcker rule.”  The rule features hoards of exceptions, most notably for market making (an activity to ensure that clients have markets for their commodities), hedging (investing in order to guard against volatile price swings), and underwriting (essentially buying securities). For example, the rule requires banks to document and identify their specific market-making activities, and many restrictions are put upon the practice; however, as Shepherd points out, it would be extremely difficult, costly, and tedious for regulators to check to see if their quotes match what’s in the trading books.
H. Rodgin Cohen, senior chairman of the law firm Sullivan and Cromwell, says it’s difficult to codify into law what the Volcker Rule aims to regulate. “There’s this debate between rules and principles, and the reason people like rules is that they’re clear,” Cohen said. “There is no way you could have clear rules here. This isn’t like saying ‘Your capital should be 7 percent, you can calculate 7 percent.’ You can’t calculate market making. You can’t calculate proprietary trading.” 
It doesn’t seem like anyone is in favor of the law. “I support the concept of the Volcker Rule,” Representative Peter Welch (D-VT) said, “but these rules aren’t going to be effective. We’ve taken something simple and made it complex. The fact that it’s 300 pages shows the banks pushing back and having it both ways.” And that’s according to a Democrat. Forget about Republicans — they’re heavily opposed to financial regulation in general and have been so since Dodd-Frank came to the floor of the Democrat-dominated 111th congress.
Especially unpopular is the possibility that small community banks, far from the Wall Street behemoths at which the law is aimed, will have to sell off significant assets. In order to mitigate this occurrence, there has been bipartisan support for protection for banks with less than $50 billion in assets.
Even the namesake of the law isn’t a fan. “I don’t like it, but there it is,” said Mr. Volcker in 2011, after the rule’s initial proposal following Dodd-Frank’s passage.  Hopefully by July 2015, the deadline for bank compliance with the rule’s stipulations, the five regulatory agencies will be able to flush out these concerns, in order to ensure bank cooperation and restore clarity in the government’s regulation of Wall Street.
 Stewart, James. "Volcker Rule, Once Simple, Now Boggles." The New York Times, October 21, 2011, sec. Business.
 Shepherd, Lee. "The Loopholes in the Volcker Rule." . http://www.forbes.com/sites/leesheppard/2014/01/08/the-loopholes-in-the-volcker-rule/ (accessed July 10, 2014).
 Moore, Michael, Dakin Campbell, and Laura Marcinek. "Wall Street Exhales as Volcker Rule Seen Sparing Market-Making." . http://www.bloomberg.com/news/2013-12-11/wall-street-exhales-as-volcker-rule-seen-sparing-market-making.html (accessed July 10, 2014).
Photo Credit: Flickr user Reto Fetz