# Volcker Rule **The model:** The [[Dodd-Frank Act]] provision (§619, effective 2015) barring banks that enjoy federal safety nets — deposit insurance, Fed liquidity — from proprietary trading and from owning hedge/private-equity funds. Paul Volcker's animating principle: institutions backstopped by the public must not gamble for their own book, because the profits are private but the tail risk is socialized. ## The Mechanism The rule is applied [[Moral Hazard (Term)]] theory: a safety net converts high-variance bets into heads-I-win, tails-the-FDIC-pays. Separating utility banking from casino banking re-prices the gamble. Its structural weakness is the *line-drawing problem* — proprietary trading shades into market-making and hedging, so enforcement lives in definitions, exemptions, and compliance metrics that industry lawyers erode clause by clause (the 2019–20 "Volcker 2.0" rewrites did exactly this). A bright-line ancestor, [[Glass-Steagall Act]], was simpler precisely because it separated *institutions* rather than *intents*. ## KB Applications ### Deregulatory sapper work as case study The Volcker Rule's life cycle — crisis birth, industry attrition, quiet weakening once memory faded — is the vault's cleanest specimen of the [[Regulatory Capture]] time-course: rules decay at the speed of forgetting. The 2025–26 agenda (supervision rollback, threshold relief, crypto-bank charters) extends the arc; cross-file with [[Bank Run]] and [[SIFI]] as the risk gauges. ### The named-rule pattern Rules named for a credible individual (Volcker, Buffett) trade on personal authority to survive lobbying — a framing device worth logging in the vault's persuasion files. [[Paul Volcker]]'s inflation-slaying reputation was the rule's political capital. ## See Also - [[Glass-Steagall Act]] — the bright-line ancestor - [[Moral Hazard (Term)]] — the disease it treats - [[Capital Requirements]] — the complementary buffer approach