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FRM Part II · FRM Exam Part II · Solvency, Liquidity and Other Regulation After the Global Financial Crisis

A US bank holding company's board asks which provision of the Dodd-Frank Act generally restricts insured depository institutions and their affiliates from engaging in short-term proprietary trading for their own account and from owning or sponsoring certain private funds. Which provision is this?

The Volcker Rule, part of the Dodd-Frank Act, restricts banking entities from short-term proprietary trading for their own account and limits their ownership of or sponsorship of hedge funds and private equity funds. The other options address interchange fees, a 1933 law, or Basel capital.

  1. AThe Volcker RuleCorrect
  2. BThe Durbin Amendment
  3. CThe Glass-Steagall separation of 1933
  4. DThe Basel III leverage ratio

Explanation

The Volcker Rule, in Dodd-Frank, bans banking entities from proprietary trading and limits ownership of hedge funds and private equity funds. The Durbin Amendment addresses debit interchange fees. The Glass-Steagall Act predates Dodd-Frank, and the leverage ratio is a Basel standard.

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