Ex-Fed Chairman Paul Volcker to urge curbing risky trading by commercial banks

February 2, 2010 by · Leave a Comment
Filed under: Policy News 

I fully support Mr. Volcker’s stance on this issue.  Even though it is extremely profitable for commercial deposit taking banks to do trading on their own books, they should either convert into a investment bank or stick to lending which is still very profitable if done properly.  As I have stated before on here, our commercial banks should be our most risk adverse institutions and that is why prudent regulations are needed and should be in place to limit this.

Investment banks are on the other hand, not regulated very much so they are allowed to make very risky trades and profit greatly.  Conversely, if they make bad choices they should be allowed to fail without the same assistance that our vital commercial banks get if we have a classic “run” on the bank.

Washington D.C., Reuters – White House economics adviser Paul Volcker will urge Congress on Tuesday to rein in risky investing by big banks to help prevent them becoming “too big to fail,” according to testimony obtained by Reuters.

The former Federal Reserve chairman, whose star is rising in the Obama administration as it pushes harder for Wall Street reform, will face questions at a Senate hearing from lawmakers seeking details on last month’s proposed “Volcker rule.”

President Barack 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.

Volcker, a monetary policy sage whose tight-money regime broke the back of stagflation when he was Fed chairman in the early 1980s, will tell the Senate Banking Committee that there is little reason for uncertainty about what he is proposing.

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