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."