Tags: obama | volcker | rules | banking

Obama White House Backs Down on Tougher Banking Rules

Tuesday, 23 Feb 2010 04:25 PM

The Obama administration lowered expectations Tuesday for the Volcker rule to curb risky trading by banks, emphasizing "limits" rather than an outright ban, as Congress shied from the original proposal.

The Treasury Department said in a statement that it supports "mandatory limits" on banks' proprietary trading, in which they trade for their own accounts. The administration last month had called for an outright ban on such trading.

But the original proposal was subject to review by Congress and, as Reuters reported last week, the Senate Banking Committee is considering only a watered-down version of the rule proposed by former Federal Reserve chief Paul Volcker.

The subtle change in language from the Treasury came as it became increasingly evident that Congress will not adopt the rule in its original form, but likely will include more modest language in legislation, according to aides and analysts.

Former New York Federal Reserve official Ernest Patrikis, a foe of the Volcker Rule, said the Treasury's latest statement "absolutely" suggests a change 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.

The Senate committee's approach was underscored Tuesday by sources who said senators were considering only a narrow version of the so-called Volcker rule that closely resembles legislation already adopted by the House of Representatives.

President Barack Obama stunned markets in January by proposing the rule at a news conference in which he stood next to White House economic adviser Volcker, the legendary former Federal Reserve chairman and advocate of banking reform.

The unveiling of the Volcker rule came late in a long debate over tightening financial regulation. In the face of dogged resistance from bank lobbyists and Republicans, a bill was approved in December by the House of Representatives.

The House bill included provisions that would allow, but not require, regulators to take some of the steps urged by Volcker. They include barring "prop trading" at banks and ordering them out of the hedge fund and private equity businesses.

In January, 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."

On Tuesday, the U.S. Treasury Department said in a statement: "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."

It said such additional restrictions were "a natural — and important — extension of the reforms already proposed" by the Obama administration.

Senate Banking Committee members are considering giving a federal banking regulator the authority 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.

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 Tuesday that 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."

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The Obama administration lowered expectations Tuesday for the Volcker rule to curb risky trading by banks, emphasizing limits rather than an outright ban, as Congress shied from the original proposal. The Treasury Department said in a statement that it supports ...
obama,volcker,rules,banking
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2010-25-23
Tuesday, 23 Feb 2010 04:25 PM
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