NEW YORK (
) -- The
Federal Reserve Board
announced on Wednesday that its final rule restricting banks' proprietary trading will go into effect on April 1.
The Volcker Rule, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act that was signed into law back in July, generally restricts banks from engaging in proprietary trading or owning private equity or hedge funds.
Certain details are still being ironed out by regulators, who are negotiating with Congress and the industry, especially over banks' market-making activities. The Federal Reserve said that the full implementation will take place "12 months after issuance of final rules by the agencies, or July 21, 2012, whichever is earlier."
In January, several analysts said that major investment banks including
would take significant hits to earnings when the Volcker Rule is fully implemented.
According to a January report by
Europe Equity Research group, the average decline in earnings per share for "a normal year" for Goldman and Morgan Stanley from the Volcker Rule's "limits on 'pure' proprietary trading alone," would be 14%. Depending on how the rule is implemented, restrictions on banks' market making activities could lead to further significant revenue declines, with a 15% revenue "impact" for
, and 14% for
Bank of America
for additional detail on the Volcker Rule's potential limiting of market making activity.
Written by Philip van Doorn in Jupiter, Fla.
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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.