Smith Experts Comment on Volcker Rule

Media Alert   Dec. 12, 2013
Attention: Financial and Economics Reporters, Editors

COLLEGE PARK, Md. - Financial experts in the University of Maryland’s Robert H. Smith School of Business are available to expand on their comments, below, about implications of the Volcker Rule reportedly expected to be approved by regulators. A component of the 2010 Dodd-Frank Act, the rule is designed to prevent banks from making risky bets with their money. 

Albert "Pete" Kyle: Careful Risk Management Still Vital

"Restrictions on banks engaging in proprietary trading will move risk out of banks and into hedge funds. Since banks will remain the hedge funds' prime brokers, risks associated with the disorderly collapse of hedge funds will spill back into the banking system unless prime brokerage has judicious, careful risk management.

"The 1998 collapse of (hedge fund firm) Long Term Capital Management is a model for what the Volcker Rule implies that future financial crises will look like." 

Kyle, UMD-Smith's Charles E. Smith Chair in Finance, created the “Kyle Model,” regarded as a foundation for the modern theory of market microstructure. A NASDAQ economic advisory board member (2004-2007), he serves on the Financial Industry Regulatory Authority's Economic Advisory Committee and the Commodity Futures Trading Commission's Technology Advisory Committee. Contact him at 301-405-9684 or akyle@rhsmith.umd.edu. 

Cliff Rossi: Rule Limits Financial Sector, was Avoidable

"Banks to a certain degree have themselves to blame – given their inability to self-govern massive risk-taking. 

"Ultimately such policymaking sets the financial sector on a potentially dangerous path toward limiting otherwise highly effective hedging tools from being applied. This would curtail critical consumer and commercial lending activities and preclude the availability of risk mitigation techniques to banks when needed at critical points in the business cycle."

Rossi, a UMD-Smith Professor of the Practice, has insight from 25 years in senior risk management and credit positions at Citigroup, Washington Mutual, Countrywide, Freddie Mac and Fannie Mae. Contact him at 301-908-2536 or crossi@rhsmith.umd.edu.