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Did Bank Rules Kill Liquidity? Volcker, Frank Respond 

October 21, 2014
Yalman Onaran, Dakin Campbell, Bloomberg

Last week’s market gyrations sparked questions about whether bank regulations implemented after the 2008 financial crisis exacerbated price declines by limiting the ability of Wall Street banks to make markets.

As stocks and some corporate bonds fell last week, some hedge-fund managers said higher capital requirements had curbed Wall Street trading desks’ ability to cushion the declines by stepping in to buy securities -- what is known as providing liquidity. Also blamed: the Dodd-Frank Act’s Volcker Rule that limits federally insured banks from speculating on some assets, including corporate debt.

Not everyone agreed. One senior executive at a big U.S. bank said fund managers’ complaints about low liquidity weren’t because trading had stopped. Instead, they were disappointed with the prices the funds got for the securities they were trying to sell. In some markets, trading surged: Volume of high-yield and high-grade corporate bonds jumped 67 percent between Oct. 10 and 16, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Read more: Bloomberg

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