Volcker Rule
Volcker Rule Restrictions on Proprietary Trading:
The Impact on USMediumCapitalization Banks
Abstract
The paper aims tofind out the effect of the announcement of the Volcker rule on the stock returns of commercial banks with medium capitalization, defined as 500,000 million to 5 billion. Different from our hypotheses, mid-cap banks experienced positive abnormal returns (ARs) and cumulative average abnormal returns (CAAR) as a result of the release of the Volcker Rule. Theinterpretation of the result is that the investors think the Volcker rule could benefit the mid-cap commercial banks compared to larger banks due to its limited involvement in proprietary trading. Our analysis also showed that there were correlation between the abnormal returns and bank-specific factors among the mid-cap banks, such as market capitalization, leverage, and book-market ratio.
Table of Contents
Introduction
After the recent Wall Street credit crunch in 2008, the federal law put into action new set of laws and regulations in the financial regulatory system. These set of laws and regulations are referred to as Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd Frank, which was enacted on July 21, 2010, aims to protect the participants in the financial market and prevent any future financial crisis. Section § 619 in Dodd-Frank Wall Street Reform and Consumer Protection Act is called Volcker Rule.
Volcker Rule, which has been named after the former Federal Reserve Chairman, Paul Volcker, prohibits banking entities, including affiliates of banks, from certain actions. These banking entities include Insured depository institutions, a company that controls, directly or indirectly, an insured depository institution or is treated as a bank holding company for purposes of the Bank Holding Company. Under Volker Rule, these financial institutions are prohibited from the following activates:
Acquire or retain any equity, partnership, or other
The Impact on USMediumCapitalization Banks
Abstract
The paper aims tofind out the effect of the announcement of the Volcker rule on the stock returns of commercial banks with medium capitalization, defined as 500,000 million to 5 billion. Different from our hypotheses, mid-cap banks experienced positive abnormal returns (ARs) and cumulative average abnormal returns (CAAR) as a result of the release of the Volcker Rule. Theinterpretation of the result is that the investors think the Volcker rule could benefit the mid-cap commercial banks compared to larger banks due to its limited involvement in proprietary trading. Our analysis also showed that there were correlation between the abnormal returns and bank-specific factors among the mid-cap banks, such as market capitalization, leverage, and book-market ratio.
Table of Contents
Introduction
After the recent Wall Street credit crunch in 2008, the federal law put into action new set of laws and regulations in the financial regulatory system. These set of laws and regulations are referred to as Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd Frank, which was enacted on July 21, 2010, aims to protect the participants in the financial market and prevent any future financial crisis. Section § 619 in Dodd-Frank Wall Street Reform and Consumer Protection Act is called Volcker Rule.
Volcker Rule, which has been named after the former Federal Reserve Chairman, Paul Volcker, prohibits banking entities, including affiliates of banks, from certain actions. These banking entities include Insured depository institutions, a company that controls, directly or indirectly, an insured depository institution or is treated as a bank holding company for purposes of the Bank Holding Company. Under Volker Rule, these financial institutions are prohibited from the following activates:
Acquire or retain any equity, partnership, or other