The Volcker Rule, named for former Federal Reserve Chairman Paul Volcker who originally proposed the concept, is arguably one of the most controversial provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. As originally intended, the Rule is aimed at preventing so-called proprietary trading, where banks take bets for their own gain rather than on behalf of their customers. Many commentators have blamed proprietary trading for the recent financial crisis. The Volcker Rule also forbids banking organizations from owning or sponsoring private equity funds of hedge funds, but this portion of the Rule has not received as much attention.

The Volcker Rule is controversial for many reasons. Several critics have joined together to warn that the Volcker Rule will take liquidity out of the financial system by limiting the market-making abilities of banks that provide liquidity to the market, thereby denying needed financing to all companies, large and small, not just Wall Street. Back in February, the Chamber of Commerce sent a later on behalf of more than 30 companies, representing a wide swath of corporate America, to make this point: "The undersigned companies and organizations, representing a diverse range of industries, believe that the Volcker Rule will have far-reaching negative consequences that will impede our ability to raise capital and manage risk."

Another concern of critics is the Rule's complexity. Many worry that the complexity of the Rule will impede the economy. For example, how will regulators distinguish allowable, legitimate, and valuable trading from prohibited proprietary trading? This is what drives the concern that the Rule will complicate banks' legitimate asset-liability and risk management activities.

But, as reported below, the Treasury's Under Secretary for Domestic Finance, Mary Miller, has promised that the agencies are going to tackle the Rule's complexity: "We will strive for simplicity with Volcker." All of the issues, trying to distinguish between allowed trading and prohibited trading, setting up provisions that will act as proxies for traders' intent (which will often be the distinguishing factor), attempting to create a carve out exemption allowing banks to hedge risk, while not creating an overly permissive carveout such that it leads to a loophole, and all of the other complex issues that the regulators will need to address, will make it difficult to achieve the simplicity for which the regulators strive and that the markets require.

The delay in finalizing the rule—slated to be finalized by July 21, 2012 and now scheduled to be finalized by year end—demonstrates the difficulty the regulators are facing. As reported below, the regulators contend that much of this delay comes from differences in beliefs about the proper implementation of the rule and the multitude of varying opinions from industry groups and the public. But again, this demonstrates the central importance of the subject matter of the Rule and complexity of the issues.