The rule is part of the 2010 Dodd-Frank Wall Street Reform Act, and is intended to separate risky bank trading activities and proprietary investments from bank consumer lending arms in banks larger than $10 billion in assets.
"The ultimate effectiveness of the rule will depend importantly on supervisors," said Federal Chairman Ben Bernanke in a statement before Tuesday's vote, adding that it will take work to pair theory with action when it comes to enforcing the rule in real market pressures.
The rule was partially rooted in the London Whale fiasco, when a JPMorgan trader lost billions in uncontrolled derivatives trading. One Fed Governor, Daniel Tarullo, said it was a real-world example of what could go wrong in proprietary trading.
Banks have until July 2015 to comply, but are urged to do so earlier. And regulators face pressures in meeting the enforcement demands. The Commodity Futures Trading Commission has throughout the year pressured Congress for more funding, and has had to delay cases and forgo filing charges against London Whale traders.
CFTC's Bart Chilton, who has earlier announced that he would be leaving the commission, decided at the last minute to vote on the revised Volcker Rule, saying that it has been tightened to close loopholes.
The final legislation is more than 900 pages in its entirety and has sparked close to 18,000 response letters during the rule-making process. The CFTC, Securities and Exchange Commission and the Office of the Comptroller of Currency are signing off on the rule without public meeting.
[Wall Street Journal]