Paul Volcker Testimony: Limiting Banks' Proprietary Activities Would Stabilize The Financial System

A day after Senate Banking Committee Chairman Chris Dodd's office indicated that he may scrap the centerpiece of President Obama's financial regulatory proposal, former Federal Reserve Chairman Paul Volcker pushed back, appearing before the committee to urge Congress to adopt the plan.

Last month, President Obama recommended that Congress implement the 'Volcker Rule,' as the reform measure is known, which would prohibit commercial banks from owning or investing in hedge funds, private equity funds or "proprietary trading" operations.

Critics have argued that the financial operations Obama seeks to limit are not narrowly enough defined to make the proposal clear or effective. But in his testimony today, Volcker disputed the criticism: "every banker" he speaks with, Volcker said, "knows very well what 'proprietary trading' means."

"As with any new regulatory approach, authority provided to the appropriate supervisory agency should be carefully specified. It also needs to be broad enough to encompass efforts sure to come to circumvent the intent of the law. We do not need or want a new breed of bank-based funds that in all but name would function as hedge or equity funds."

Volcker also pushed back against critics who hold that curbing commercial banks' speculative activities would doom their profits. Under his eponymous rule, there would be a "range of potentially profitable services that are within the province of commercial banks," wide enough, he said, "to provide the base for strong, competitive -- and profitable -- commercial banking organizations, able to stand on their own feet domestically and internationally in fair times and foul."

Comments

[bluepond]

10:02 PM on 02/03/2010

Re complaints about the vilification of banks, Wall street and big business: um, yeah. And if you don't wake up, it will be way way worse than a little good-natured villification.

[JaxReader]

05:49 PM on 02/03/2010

PLEASE keep pushing Volcker!

[Bloviator88]

04:42 PM on 02/03/2010

Sorry, America, Rahm says no regs now or ever. Next subject....

[larmar]

11:14 AM on 02/03/2010

Rather then let this clown show continue, how about our President put out a statement saying that if this legislation is gutted then he will veto the bill when it gets to his desk. That would be one thing he could do to PROVE to the American people that he "get's it." Otherwise Obama, Carter, and Bush Sr. will all have the same thing in common. (1 term in office)

[RomeoMD25]

07:22 AM on 02/03/2010

Bernancke is like a drug dealer and the drug is credit/printed money and the senate are the local distributors so of course they vote the king dealer back in.

[bodel]

07:10 AM on 02/03/2010

Dodd is simply prepping for his next career as a lobbyist for the 'financial' industry..either dierctly or not.
Another political thug who has betrayed his constituents who will now be able to overtly screw the citizenry and the American Dream..if their ever really was one...

[maxhardon]

07:22 AM on 02/03/2010

He's a dream all right, that bribe taking crook, stuffing his pocket with money from the banks.

[guveqzero]

06:09 AM on 02/03/2010

It's obvious Dodd is concerned with his legacy, which is unfortunate for America. He doesn't want to be remembered as the guy that pushed the reset button on ten years of financial history. He would rather have someone else do that than face his own failure of leadership. The sooner he retires the better. It's time to push out the people that have failed so miserably; and in our time of need, their lack of creativity and imagination has left us in oblivion. This situation exists today for many leaders and business mangers throughout our economy. It's time to upgrade the upper management.

[maxhardon]

07:24 AM on 02/03/2010

Ah, c'mon the only thing he's concerned about is not leaving a paper trail and hoping that the IRS doesn't get access to his Swiss banking account.

[PhilipTaylor]

05:01 AM on 02/03/2010

TOUGH MINDED SMART CHANGE CAN TRANSFORM BANKING INTO HONEST AND POSITIVE FORCE VIA AUTOMATION!

0bama’s Spot On = Small Business and Jobs are #1 = Restore the fabric of America

The Great Divide last 8+ years = Haves vs. Have NOTS = Main Street vs. Wall Street

Te enormity of the Cumulative Imbalances in the system is a cancer that has outgrown the entire economic patient.

Anger has lead to "Whatever it is, I'm against it" attitude by the OUT PARTY as they FE_AR CHANGE! Regardless the Problems must be SOLVED rather than masked and laws are the only way to do that. It takes open debate to get there and facts are the catalysts.

Last decade was the worst financial performance in history!

This recession built on the TECH Bubble and Deregulation masked by the low FED Rates and skewed by the massive Derivatives and Housing Debt BUBBLES.

While the eye of the storm has passed, the other side of the tornado lays in wait!

Some call this the Vilification of Wall Street but Wall Street created the scams using its ability to buy Washington, V0TE PR0STITUTES, and LAWS for 0.001% of their annual Gains!

Blatant disregard for America became clear with $160 Billion in Bonuses - More than the Combined Debt of all 50 States in USA!

Off-Shore tax shelters that allowed G0LDMAN to pay 1% in Taxes in 2008!

[PhilipTaylor]

05:01 AM on 02/03/2010

These people pretend not to be part of the Solution but, in fact, behind the scenes use their L00T and POWER to block laws and solutions.

The question is, “Does Wall Street help or HINDER Main Street?” All signs point to HINDER!

Some NEW People will rise to thee TOP on Wall Street and prove themselves capable of operating within a FAR MORE AUSTERE COMPENSATION SYSTEM doing an Honest Job and serving the Production and Service Needs of the Real Main Street Economy! The Current Batch of Management will NOT be part of that group!

If REAL CHANGE happens then we can turn the corner and leave a better world for our children. It will require TOUGH MINDED Decisions and those that FAILED or COMMITTED CRIMES will have to GO!

We can rise from the ashes of this CRISIS with hard work and Smart CHANGES!

The bigger plan is the FINANCIAL ARISTOCRACY CREATES “ONE WORLD RULE” by THEM!

[sonofsamphm1c]

02:38 AM on 02/03/2010

Before the crisis these were commonly referred to as investment banks:

1. Bear Stearns
2. Merrill Lynch
3. Lehman Brothers
4. Goldman Sachs
5. Morgan Stanley

Since the crisis, Bear Stearns, with the assistance of the Federal Reserve, was purchased by JP Morgan Chase. Merrill Lynch, with the assistance of the Federal Reserve, was purchased by Bank of America. Lehman Brothers went bankrupt, and it spawned the largest amount of economic damage since the Great Depression. Their customers have most likely migrated to BHC/FHC that are also functioning as investment banks. Goldman Sachs and Morgan Stanley elected to become Bank Holding Companies/Financial Holding Companies - safety-net banks.

So they no longer exist. You will note that just one went bankrupt. Volcker is saying investment banks can just go bankrupt willy nilly without harming the overall financial system as long as commercial banks are not involved prop trading, etc.

Huh? Just one going bankrupt caused the most financial damage since the Great Depression. What if Bear Stearns and Merrill Lynch had also gone bankrupt? Lol.

So what is going to happen?

Morgan Stanley and Goldman can just rescind their elections to become BHC/FHC. Then maybe they can buy up the stuff the Volcker rule will force the safety-net banks to unload? Could Goldman Sachs end up winning huge here? Oh the misery. Then when they go bankrupt, the overall economic system will just hum along - not miss a beat?

[Harrier]

02:06 AM on 02/03/2010

That has to get 60 votes

[crzy]

01:19 AM on 02/03/2010

Keep pushing Volker - the markets will sustain and not crash/burn. Keep the pressure.

[racetoinfinity]

12:04 AM on 02/03/2010

Reinstating Glass-Steagall is what is most crucially needed. That would eliminate the ambiguity there seems to be about Obama/Volker's proposal. Progressives in Congress have to introduce and push it.

[crzy]

01:18 AM on 02/03/2010

Um. McCain? and Cantwell - half progressive but at least it has been introduced. I agree, reinstate G-S. Cut and dry.

[sheaintsayin]

11:29 PM on 02/02/2010

"Volcker also pushed back against critics who hold that curbing commercial banks' speculative activities would doom their profits."

Excuse me, but this hyperbole applied at all things banking is so disgusting and morally corrupt. Isn't 'reasonableness' appropriate for everything? Is unfettered profit at the expense of just about all else, uhm, not healthy? Eff the critics; they are rapingandpillaging as we type!

[Icantbelieveher]

11:23 PM on 02/02/2010

They worry that regulation will limit the bank's profits? Seriously? It will only limit the outrageous sucking noise you hear as they siphon every penny out of our economy. Then when we have nothing left to give, they will move to another country and destroy it!

[OB-GYN]

11:15 PM on 02/02/2010

“Wise men speak because they have something to say; Fools because they have to say something.” -Plato

Volcker::Dodds

[Smithn]

04:07 AM on 02/03/2010

It appears the spirit of Plato whispered in your ear after observing our current congressional antics. Very nice. {{{{ fanned}}}}