Trading curbs should apply to all banks – U.S. Treasury’s Wolin

February 2, 2010

WASHINGTON, Feb 2 (Reuters) – Commercial banks should not be allowed to establish or maintain a separate trading desk, capitalized with their own resources and unrelated to customer business, a top U.S. Treasury official said on Tuesday.

At a hearing to examine a White House proposal to restrict banks’ proprietary trading, Treasury Deputy Secretary Neal Wolin said banks should not be allowed to use such trading desks to speculate on the price of oil, gas or equity securities.

In January, the Obama administration proposed limiting commercial banks’ ability to engage in proprietary trading or do business with a hedge fund or private equity fund.

Wolin said those restrictions should apply to all banks, including the U.S. operations of foreign banking firms that have a U.S. branch and fall under U.S. federal laws.

Foreign operations of U.S.-based banking firms would also be subject to the trading and speculative limits, Wolin said.

“This proposal forces firms to choose between owning an insured depository institution and engaging in proprietary trading, hedge fund or private equity activities,” Wolin told the Senate Banking Committee.

However, Wolin said this would not allow any major firm to escape strict government oversight. Wolin said all large interconnected firms must be subject to consolidated supervision at the federal level.

Before the financial crisis, large investment banks such as Lehman Brothers and Bear Stearns were subject to voluntary supervision by the U.S. Securities and Exchange Commission.

Lehman collapsed and filed for bankruptcy in mid-September 2008, while Bear Stearns was acquired by JPMorgan Chase & Co  in March 2008, and other investment bank holding companies have either merged with another firm or have been reorganized as bank holding companies since then.

“The idea that investment banks like Bear Stearns … could escape consolidated federal supervision should be considered unthinkable from now on,” he said.

(Reporting by Rachelle Younglai; Editing by Jan Paschal) ((rachelle.younglai@thomsonreuters.com; + 1 202 898 8411))

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