The Expressive Synergies of the Volcker Rule

In this manuscript, I propose an alternative implementation of the Volcker Rule, Section 619 of the Dodd-Frank Wall Street Reform and Customer Protection Act of 2010. The Volcker Rule restricts the proprietary trading of U.S. banks and their affiliates to certain “client-oriented” activities, such as market making. Under my proposal, federal financial regulators would implement the Rule’s “market-making-related activities” exemption to realize synergies with Dodd-Frank’s initiatives in the area of swaps regulation and the regulation of over-the-counter markets. The manuscript draws upon the academic literature regarding expressive law, the history of federal banking legislation, and the text of the Dodd-Frank Act to argue that federal financial regulators have the discretion to implement the Rule’s mandate in a manner that transcends the twin concerns of safety and soundness and mitigation of conflicts of interest. I further argue that such an implementation may well be essential to the vitality of the Volcker Rule, in light of the parsimonious implementation currently proposed by the federal financial regulators and the political forces aligned in favor of the Rule’s repeal.