Bipartisan discussion is under way in the Senate Banking Committee about possibly imposing new limits on proprietary trading by banks, a Democratic committee member told Reuters on Tuesday.
Senator Jeff Merkley had earlier called for a study of the risks and conflicts of insured depository institutions investing their own money, as opposed to customers' money, in "securities, commodities, derivatives, hedge funds, private equity firms" or other financial products.
In an exclusive interview, Merkley said: "There's a lot of discussion going on between (Democrats and Republicans) about doing something significantly stronger than that."
He said: "If you have that type of function inside a depository lending institution, at some point, it's going to blow up the institution ... We're going to see it again if we don't create some kind of a wall."
The principle of putting up "a firewall between risky activities and the depository lending function ... is important and needs to be in this bill," he said, referring to financial reform legislation being forged by the banking panel.
The Oregon lawmaker also said he still plans to vote against reconfirming Ben Bernanke as chairman of the Federal Reserve — a position Merkley marked out late last year.
The Senate may vote as early as Friday on Bernanke's renomination to a second term as chairman of the U.S. central bank, a senior Democratic party aide said on Tuesday.
While there have been a number of "holds" placed on the nomination by individual senators, Democratic leaders are expected to muster the 60 votes needed in the 100-member chamber to clear Bernanke's confirmation.
Bernanke faces an unusually high level of opposition, reflecting a backlash against the 2008 financial crisis and anger at the recession and bank bailouts that followed.
Bernanke's "background proved very helpful in addressing this recession, but he was at the table when all the decisions were made" that led to the crisis, Merkley said.
On a related topic, he said he could see possible compromise between Senate and House proposals to expose the Fed to a new level of scrutiny by Congress' investigative arm, the Government Accountability Office (GAO).
A sweeping financial regulation reform bill approved last month by the U.S. House of Representatives would for the first time let the GAO audit the Fed's monetary policy decisions. That proposal, drafted by Republican Representative Ron Paul, is strongly opposed by the central bank.
A Senate proposal, authored by Merkley and Republican Senator Bob Corker, would shield monetary policy from GAO audits, while letting the GAO look into the Fed's use of its powerful authority to make emergency loans.
"You may be able to go further than we went in our draft bill without encroaching and causing dysfunction. I don't think you can go as far as Ron Paul's bill went without damaging the monetary function of the Fed, but there's probably room to work out a compromise in there," Merkley said.
Finally, the senator said he is "very concerned" about the status of the Obama administration's proposal to create a financial consumer watchdog agency. Lobbyists and congressional aides have said it is losing support in the banking committee.
Democratic committee Chairman Christopher Dodd and other senior members of the panel are trying to hammer out a compromise financial regulation reform bill, with one possibility said to be downgrading the proposed watchdog from an independent agency to something less than that.
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