By Mark Felsenthal
ATLANTA, Jan 5 (Reuters) – A top U.S. Federal Reserve official on Tuesday backed stripping banks of risky operations, suggesting growing support for breaking up large firms to prevent excesses that could undermine financial stability.
At a meeting of top economists here, Kansas City Federal Reserve Bank President Thomas Hoenig voiced support for former Fed Chairman Paul Volcker’s recommendation that banks not be allowed to sponsor hedge or equity funds.
However, also like Volcker, Hoenig stopped short of calling for restoration of Glass-Steagall banking laws that barred large banks from affiliating with securities firms and engaging in the insurance business.
Hoenig said areas where firms engaged in risky trading or “gambling” for their own account should be separated from commercial banking activities, as Volcker had suggested.
He told a panel at an American Economics Association conference it was important to safeguard the commercial banking sector from the riskier practices once the sole domain of investment banks, given the sector’s importance to both the U.S. and global economies.