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Write short notes on the Volcker rule.

To reduce speculative investments by banks, former Federal Reserve chairman Paul Volcker advocated prohibiting banks that take deposits from engaging in proprietary trading. A Volcker Rule was included in the Dodd-Frank Act after heated debate and was subsequently subject to extensive rule-making activity to refine the restrictions. The rule allowed banks to trade on behalf of clients and to hedge their own risks. Under the rule a bank's ownership in hedge funds and private equity funds was restricted to no more than 3 percent of its Tier 1 capital, composed of common equity, retained earnings, and certain nonredeemable preferred stock. A bank also was restricted from owning more than 3 percent of a hedge fund or private equity fund. These requirements covered non-depository banks such as Goldman Sachs and Morgan Stanley. Nonbank financial companies including hedge funds were required to register as investment advisors and be subject to restrictions on capital requirements and investments as determined by rules to be determined by regulators. They may also be subject to supervision by the Federal Reserve if so designated by the Financial Stability Oversight Council.