Volcker plea over Wall St shake-up

Volcker plea over Wall St shake-up
By Tom Braithwaite in Washington and Francesco Guerrera in New York
Copyright The Financial Times Limited 2010
Published: February 2 2010 17:27 | Last updated: February 3 2010 01:25
http://www.ft.com/cms/s/0/db6a9ed8-101f-11df-841f-00144feab49a.html


Paul Volcker, former Federal Reserve chairman, made a direct pitch to Congress to prevent his proposed ban on banks’ proprietary trading from being diluted or scrapped by sceptical lawmakers.

No member of the Senate banking committee voiced outright opposition to the plan – announced by Barack Obama, the president, last month – but there was plenty of criticism from Democrats and Republicans at the manner and lack of detail of the announcement.

Chris Dodd, Democratic chairman of the committee, offered support for the “Volcker rule” or a “variation” of it but lambasted the administration and said the Treasury was not giving good answers to questions.

“The idea that the administration made such a major point a week or so ago, seemed to many to be transparently political and not substantive,” he said. “And it’s adding to the problems of trying to get a bill done.”

Richard Shelby, the senior Republican, criticised the way “this concept was air-dropped into the debate” months after the administration had put forward its regulatory reform plan.

In his testimony, Mr Volcker, who chairs a presidential advisory board, dismissed industry concern that it was difficult to separate proprietary trading from the buying and selling conducted on behalf of customers.

“Every banker I speak with knows very well what ‘proprietary trading’ means and implies,” he said.

“What I want to get out of the system is taxpayer support for speculative activity.”

More on Volcker
Full testimony to the Senate Banking Committee

Man in the News: The elder statesman behind Obama’s bank plan, is back

He said that trading should be allowed if it was undertaken for customers but regulators should clamp down on any attempts to evade new rules. “There will be temptations to speculate by aggressive, highly remunerated traders,” he said.

Further cracks in the relationship between the administration and Congress come as Kevin Warsh, of the Federal Reserve Board, says in the Financial Times on Wednesday that the debate was “overly preoccupied with questions of institutional design”.

He says reforms should not ignore the benefits of competition and should avoid treating banks as “quasi-public utilities”.

The Volcker rule does seek to split utility functions of banks from riskier trading activity. Bob Corker, a Tennessee Republican, suggested the rule was unnecessary. “There already are firewalls that exist,” he said.

“I kind of struggle with this size-cap approach,” said Mark Warner, a Democrat from Virginia. The administration says that a new cap, which would supplement an existing limit on a bank taking more than 10 per cent of US deposits, would not affect the industry as currently configured.