February 24, 2010
White House recommits to "Volcker rule" trade ban
WASHINGTON (AFP) - The Obama administration said on Tuesday it is still committed to the "Volcker rule" to ban risky trading by banks, although Congress looks increasingly unlikely to adopt the rule as proposed.
"We're not walking away from and we're not watering down that proposal one bit," White House spokesman Robert Gibbs told reporters when asked about the outlook for the controversial rule put forward by former Federal Reserve chief Paul Volcker.
The statement from Gibbs came as the U.S. Senate was closing in on long-awaited legislation to tighten regulation of banks and capital markets following the financial crisis. A bipartisan bill is expected to be released within days.
The Senate Banking Committee is considering including a watered-down version of the Volcker rule in the bill, which will also propose new rules to protect financial consumers and rein in derivatives markets.
Sources on Tuesday said senators may add to their bill language from a measure approved in December by the House of Representatives.
The House bill would allow, but not require, federal regulators to restrict proprietary trading at firms judged to pose a risk to the stability of the financial system. They could also order firms to exit the hedge fund business.
President Barack Obama stunned markets in January by proposing a harder-hitting rule at a news conference in which he stood next to White House economic adviser Volcker.
At that time, Obama proposed that "banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers."
GOLDMAN COULD TAKE 10-PCT HIT
The so-called 'Volcker rule' could affect as much as 10 percent of net revenues at Goldman Sachs, said a senior executive of the Wall Street giant earlier this month.
In response to questions about the administration's commitment to that proposal on Tuesday, the Treasury Department said it supports "mandatory limits" on banks' proprietary trading, in which they trade for their own accounts.
"We believe that rather than merely authorize regulators to take action, we should impose mandatory limits on proprietary trading by banks and bank holding companies."
The statement also reiterated the Treasury's support for "related restrictions on owning or sponsoring hedge funds or private equity funds, as well as on the concentration of liabilities in the financial system."
Former New York Federal Reserve official Ernest Patrikis, a foe of the Volcker rule, said the Treasury's latest statement suggested a subtle shift in the administration's stance.
"They realize they are off track and that the original proposal was misdirected, too strong and ill-advised," said Patrikis, a specialist in bank regulatory issues at the law firm White and Case in New York.
Senate Banking Committee members are considering giving regulators the power to impose limits on a bank's proprietary trading only if the regulator thinks the bank's activities threaten its safety and soundness.
The rules would apply only to banks with assets over $50 billion, the sources said.
HOUSE BILL CLOSELY SIMILAR
Those parameters align closely with the House bill. One of its chief authors, Representative Paul Kanjorski, chairman of the House Capital Markets Subcommittee, told reporters on Tuesday he would support keeping the "measured" language in the House bill or the White House's proposal.
Either way, he said, "I don't think that it hurts anybody except those who want to speculate very quickly. ... Let's be honest, some of these people just don't learn.
"When your dog just keeps wetting the carpet, there's only one thing to do, you've got to whack him on the nose to let him know that's not what he's supposed to do. Maybe the regulators have to whack the banks a little bit to make them respond."
Separately, Senate Agriculture Committee Chairman Blanche Lincoln said on Tuesday the panel will unveil a draft bill in the next couple of weeks to crack down on over-the-counter derivatives, an area also addressed in the House-passed bill.
In another financial regulation issue, a senior Treasury official on Tuesday said at a conference that it is vital to set up a separate financial consumer watchdog agency.
Obama's proposed Consumer Financial Protection Agency is a major obstacle to bipartisan Senate agreement on reforms.
Michael Barr, the department's assistant secretary for financial institutions, said the Treasury was well aware that lobbyists were trying to "slow progress or weaken reform."
But he signaled the administration was ready to fight for a separate consumer watchdog. "Dedicating consumer markets regulation to a fully accountable agency will give banks and credit unions a more predictable regulatory environment," he said. "Institutions will have more certainty, which will make it easier to build a sustainable business."
AP
