Implications of the Volcker Rule

Accounting Treatment for Investments in Debt Securities

John A. Ruddy, CPA, CFA, and Douglas M. Boyle, DBA, CPA, CMA

On December 10, 2013, the federal financial agencies—that is, the Commodity Futures Trading Commission (CFTC), the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the SEC—released the final approval pertaining to the Volcker Rule, effective April 1, 2014. The Volcker Rule refers to section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The impact of this ruling on Wall Street is expected to be far-reaching and significant (see Justin Baer and Julie Steinberg, “Volcker Rule Challenges Wall Street,” Wall Street Journal, Dec. 10, 2013). The article notes that the rule will limit Wall Street risk-taking and impact trading activities and profits, and it “will force banks to rethink virtually every aspect of their trading activities, setting the stage for more tumult at the largest U.S. financial institutions.” With regard to the potential impact on profits, the rule “could lop as much as $10 billion total in yearly pretax profit from the eight largest U.S. banks through lower revenue and higher compliance costs, according to estimates from Standard & Poor's.”