Financial Regulatory Forum

By Kevin Drawbaugh and Rachelle Younglai

WASHINGTON, Feb 2 (Reuters) – White House economic adviser Paul Volcker urged Congress on Tuesday to rein in risky investing by big banks to prevent them from becoming “too big to fail.”

The former Federal Reserve chairman — a sage of monetary policy and crusader for tighter regulation whose star is rising in the Obama administration,– faced questions from lawmakers about President Barack Obama’s latest proposals affecting big banks.

Obama stunned financial markets in late January by calling for new limits on banks’ ability to do proprietary trading, or buying and selling of investments for their own accounts unrelated to customers.

Since then analysts have speculated widely about exactly what sort of activities would be off-limits if Congress adds the proposal, formulated by Volcker, to a sweeping package of financial regulatory changes still being debated.

Some see the boundary between proprietary trading and market-making that helps customers as blurred, but Volcker said there was little reason for uncertainty.

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.

WASHINGTON, Feb 2 (Reuters) – The regulator of the largest U.S. banks said on Tuesday that proprietary trading was not at the root of the financial crisis and warned that excessive limits could impair some of banks’ central functions.

“It’s one thing to talk about pure proprietary trading as a business where the bank is in the business of taking bets on particular markets for its own account. And I understand the concern with that going forward, although this was not a big source of the problems that led to the crisis,” Comptroller of the Currency John Dugan told reporters on the sidelines of a securitization conference.

President Barack Obama late last month proposed new limits on big banks’ risk-taking, including curbs on commercial banks’ ability to engage in trading for their own profit instead of for clients.

By Huw Jones

LONDON, Feb 1 (Reuters) – U.S. President Barack Obama’s plans to curb proprietary trading will be hard to define and could create regulatory loopholes for banks to exploit, a top European Union official said on Monday.

Obama’s “structural” reform was very different to the regulatory approach adopted by the EU and globally via the G20 group of countries which focuses on toughening up the Basel bank capital rules, said David Wright, deputy chief of the European Commission’s internal market unit.

“This has not been done in the traditional way,” Wright said of the Obama plan.

By Martin Howell and Tamora Vidaillet

DAVOS, Switzerland, Jan 28 (Reuters) – Wall Street executives welcomed U.S. President Barack Obama’s plan to create jobs and a softening of his attack on banks, but questioned on Thursday whether proposals in his State of the Union address would become law.

Obama pushed job creation to the top of his agenda in his annual speech to Congress and vowed not to abandon his struggling healthcare overhaul after the loss of a key Senate seat in Massachusetts raised doubts about his leadership.

He renewed criticism of bankers’ “bad behavior” and of the recklessness that triggered the deepest crisis since the 1930s, but appeared to ease his assault on big banks.

By Sumeet Desai

LONDON, Jan 28 (Reuters) – Breaking up banks and going it alone in reforming regulation is not the magic solution to avoiding future crises, British finance minister Alistair Darling told Reuters on Thursday.

In an interview ahead of going to the World Economic Forum in Davos, Switzerland, Darling also brushed aside concern that UK government bonds were a ticking time bomb, pointing out Britain’s funding requirements were lower than many other countries.

U.S. President Barack Obama sent shockwaves through markets last week with proposals to force commercial banks to cut ties with hedge funds and private equity funds and to stop proprietary trading.

WASHINGTON, Jan 26 (Reuters) – Former Federal Reserve Chairman Paul Volcker is tentatively scheduled to testify next week on the latest White House bank regulation proposals to the U.S. Senate Banking Committee, two Democratic aides told Reuters on Tuesday.

The panel is also working on another hearing with Treasury Department officials on the proposals unveiled last week to limit the size of banks, their proprietary trading and their links to hedge funds and private equity, the aides said.

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