Are Banks Risking Your Money?

By Tracey Goins

  • Exclusion from the Volcker rule could be good news for black-owned banks

  • New trading rules protect consumers from risky investments

Regulators have proposed a new edict that would exclude some community banks from the Volcker rule. Banks with $10 billion or more in combined assets are most impacted by the new rules. Depending on what side of the issue you’re on, this is where black-owned banks may have caught a break.

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Why This Matters: The banking system can be a bit intimidating, but the common principles are really quite simple. Most consumers are aware banks benefit financially from assessing fees and earned interest from depository accounts and loans, but the real money is in trading and investing. These strategies, long practiced by banks have recently come under a great deal of scrutiny and are more regulated than ever before thanks to legislation like the Volcker rule.

According to the FDIC there are 22 black owned banks in the U.S. currently serving communities of color. The two biggest institutions Carver Federal Savings Bank and OneUnited Bank both have more than $650 million in assets, but well under the $10 billion level impacted by the Volcker rule. Five major federal agencies, notably the Federal Deposit Insurance Corporation (FDIC), an agency that ensures your bank dollars, came together to create the Volcker Rule. It was created to prevent big banks from trading in the investment market unless they are doing so on behalf of the customer. Although changes to proprietary trading was expected, the implementation of the Volcker Rule created a much larger exception than originally anticipated.

The two biggest institutions Carver Federal Savings Bank and OneUnited Bank both have more than $650 million in assets, but well under the $10 billion level impacted by the Volcker rule

Whether or not your personal money philosophies align with the rule, the initial intent was protection. However, it can also cause growth to become stagnant. Black-owned banks, where capital is typically less than its larger counterparts, may find it difficult to achieve growth potential without investing.

Situational Awareness: Bank’s mismanagement of consumer funds partially contributed to the 2008 financial crisis. Implementation of the Volcker rule suggests it protects banks from becoming “too big to fail” again. The spirit of the rule is to try and discourage banks from being too risky in its trading practices and ultimately protect consumers money.

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