In simpler times, a bank was somewhere you could go to deposit your savings and make interest; turn to for an overdraft, loan or mortgage; or trust to manage your portfolio of stock and bond investments. The bank made its money by charging more for loans than it paid in interest on savings; through fees for providing bank accounts; and by commission on the financial transactions it made on your behalf. However, times have moved on and banks have become ever more ingenious in the ways that they turn a profit, sometimes surfing the line between unethical and illegal, as many recent banking scandals attest.
Wayward banking practices and excess within the financial sector were heavily blamed for the Global Financial Crisis and have led to statutory reforms in the UK, Eurozone, EU and elsewhere. The five key regulatory agencies in the USA have just adopted the so-called Volcker rule which is a keystone of the Dodd-Frank legislation designed to rein-in the US financial industry. Named after former Federal Reserve Chairman who was instrumental in its drafting, Paul Volcker, the centrepiece of the legislation will prohibit banks from trading with their own funds (rather than client funds) with effect from 21st July 2015, at the latest.
Naturally, a curb to banking practices said to net them anything between $2- and $10 billion per annum has been strongly resisted by the industry which explains the delay of three years between the design and adoption of the plan.
Commenting on the plan, President Obama said: "The Volcker Rule will make it illegal for firms to use government-insured money to make speculative bets that threaten the entire financial system, and demand a new era of accountability from CEOs who must sign off on their firm's practices."
The US Chamber of Commerce is said to be unhappy with the details of the legislation and it may yet be the subject of a legal challenge.