This report examines the numerous unintended, but nonetheless harmful, effects of the current Volcker Rule proposal, particularly on main street businesses.
The analysis, authored by Washington University Finance Professor Anjan Thakor, surveys existing academic research and empirical evidence, and reveals that restrictions imposed under the Volcker Rule proposal will extend beyond Congressional intent to impact both financial and non-financial businesses by:
- Reducing the ability of companies to raising capital by issuing debt: A negative effect on market making and liquidity provision for many securities.
- Increasing the cost of raising capital, resulting in reduced investments: Likely higher costs of capital for businesses and potentially lower capital investments by borrowers.
- Reducing the choices and options available for companies to raise capital: Possibly greater focus on riskier or more short-term investments by borrowers.
- Reducing the diversity and availability of capital providers to businesses: Some banks that never had proprietary trading desks but do help companies raise capital by issuing debt, may choose not to continue to provide those services.