What is Totus in finance?
Exemption for Trading Outside the United States. The 2013 Rule provides an exemption from the proprietary trading restrictions for trading by a foreign banking entity outside the United States (the so-called “TOTUS exemption”).
Trading Outside of the United States (“TOTUS”) Exemption. The Volcker Rule permits certain foreign banking entities to engage in proprietary trading activities that occur solely outside of the United States.
The Volcker Rule consists of two major parts: rule preventing banking institutions from partaking in proprietary trading from their own funds and limiting banking institutions from investing in hedge funds or private equity funds.
The Volcker Rule is named after former Federal Reserve chairman, Paul Volcker, who proposed the rule as a way to curb the US banks' speculative trading activities that did not benefit consumers. Volcker headed the Economic Recovery Advisory Body under the Obama administration in 2009.
In a section of the Dodd-Frank Act commonly known as "the Volcker Rule." Congress banned proprietary trading by banks and their affiliates, but exempted proprietary trading that is related to market making, among other exemptions.
During his tenure as chairman, Volcker was widely credited with having ended the high levels of inflation seen in the United States throughout the 1970s and early 1980s, with measures known as the Volcker shock. He previously served as the president of the Federal Reserve Bank of New York from 1975 to 1979.
The Volcker Rule does apply to every foreign entity that directly or indirectly maintains a bank branch or agency in the United States, or controls a commercial lending company.
The most far reaching Wall Street reform in history, Dodd-Frank will prevent the excessive risk-taking that led to the financial crisis. The law also provides common-sense protections for American families, creating new consumer watchdog to prevent mortgage companies and pay-day lenders from exploiting consumers.
➢ Section 619 of the Dodd-Frank Act, commonly referred to as the Volcker Rule, generally prohibits banking entities from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund.
Relaxation, 2020-present
On June 25, 2020, the Volcker Regulators relaxed part of the rules involving banks investing in venture capital and for derivative trading.
Who is excluded from the Volcker Rule?
A bank may be excluded from the Volcker Rule if it does not have more than $10 billion in total consolidated assets and does not have total trading assets and liabilities of 5% or more of total consolidated assets.
The Volcker Rule applies to “banking entities” – defined by statute to include FDIC-insured depository institutions, bank holding companies, savings and loan holding companies, other entities that control an FDIC-insured depository institution, and foreign banks conducting banking activities in the U.S. (referred to ...
Importantly, under revisions to the Volcker Rule implemented in 2019, the Federal Reserve modified the requirements of the TOTUS Exemption to permit (i) trading with U.S. counterparties, and (ii) the involvement of U.S. personnel in arranging, negotiating or providing other services with respect to a transaction, so ...
The Volcker Rule is one of the more controversial pieces of legislation to emerge from the financial crisis. Attached to the Dodd-Frank Act, the rule was intended to limit banks' ability to make speculative investments that do not benefit their customers.
(a) Prohibition. Except as otherwise provided in this subpart, a banking entity may not engage in proprietary trading. Proprietary trading means engaging as principal for the trading account of the banking entity in any purchase or sale of one or more financial instruments.
Determined to wring inflation out of the economy, Federal Reserve chairman Paul Volcker slowed the rate of growth of the money supply and raised interest rates. The federal funds rate, which was about 11% in 1979, rose to 20% by June 1981.
The reduction in inflation that occurred in the early 1980s, when the Federal Reserve was headed by Paul Volcker, is arguably the most widely discussed and visible macroeconomic event of the last 50 years of U.S. history.
Over time, greater control of reserve and money growth, while less than perfect, produced a desired slowing in inflation. This tighter reserve management was augmented by the introduction of credit controls in early 1980 and with the Monetary Control Act.
Super 23A: Permissible Low-risk Transactions with Related Funds. The Volcker Rule generally prohibits all covered transactions between a banking entity and a covered fund that it advises or sponsors (a “related fund”).
Volcker slammed the brakes on the economy by raising interest rates to 20% — tough medicine to prove he was serious about getting inflation under control.
Does Dodd-Frank still exist?
A partial repeal to the Dodd–Frank Act, leaving in place its central structure, was passed in 2018 with the Economic Growth, Regulatory Relief, and Consumer Protection Act.
The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive.
The Bottom Line
"Dodd-Frank Wall Street Reform and Consumer Protection Act."
Dodd-Frank was created to prevent predatory lending and to help consumers understand the conditions of their debt. The act included a Consumer Financial Protection Agency that would regulate mortgages, auto loans, and credit cards.
The Volcker Rule does apply to every foreign entity that directly or indirectly maintains a bank branch or agency in the United States, or controls a commercial lending company.
