(Click on the image to enlarge)The Volcker Rule (also known as the "Volcker Plan") is a proposal by American economist and former Federal Reserve Chairman Paul Volcker to restrict banks from making certain kinds of speculative investments if they are not on behalf of their customers. Volcker has argued that such speculative activity played a key role in the financial crisis of 2007–2010. Volcker was earlier appointed by Obama as the chair of US President Barack Obama's Economic Recovery Advisory Board, a board created on February 6, 2009.
Basically it is the trading restrictions placed on financial institutions. The Volcker rule separates investment banking, private equity and proprietary trading (hedge fund) sections of financial institutions from their consumer lending arms.
Banks are not allowed to simultaneously enter into an advisory and creditor role with clients, such as with private equity firms. The Volcker rule aims to minimize conflicts of interest between banks and their clients through separating the various types of business practices financial institutions engage in.
The rule was introduced following the recession of 2008, to control the risk associated with the financial sector. Wall Street banks were accused of accumulating an excessive amount of risk and unfair business practices due to the inability of regulators to properly monitor their complex instruments and activities. The Volcker rule aims to protect individuals by creating a more transparent financial framework which can be regulated with greater ease.
Source - Investopedia.com
Image Source - nakedcapitalism.com
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