White House Seeks Additional Bank Restrictions

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, Jan. 21, 2010.

The White House announced Jan. 21, 2009, that it is proposing additional financial regulatory reforms aimed at reducing risk and preventing further concentration in the financial system.

“While the financial system is far stronger today than it was a year ago, it is still operating under the exact same rules that led to its near collapse,” said President Obama.

The administration proposal would seek to block any bank or financial institution that operates a bank from owning, investing in or sponsoring a hedge fund, private equity fund or proprietary trading operations that are not related to client business. “You can choose to engage in proprietary trading or you can choose to own a bank, but you can’t do both,” a senior administration official said. Obama said he was calling the proposal the Volcker Rule, acknowledging the input from former Federal Reserve Board Chairman and Economic Advisor Paul Volcker.

In addition, the White House is calling for limits on the excessive growth of the market share of liabilities at the largest financial firms by supplementing the existing 10-percent cap on the market share of deposits.

Senior administration officials said the White House will ask Senate Banking, Housing and Urban Affairs Committee Chairman Chris Dodd, D-Conn., and House Financial Services Committee Chairman Barney Frank, D-Mass., to supplement their financial reform legislation with the White House proposals.

Officials denied that the latest reform proposals were a return to the days of Glass Steagall, the Depression-era legislation that separated the activities of commercial and investment banks. “We’re not returning to Glass Steagall,” one official said, adding that what the White House had proposed was “fundamentally different from the question of whether commercial and investment banks should be part of the same company.”

Obama, meanwhile, urged Congress to “get this done,” and called on Wall Street to cooperate. “If these folks want a fight, it’s a fight I’m ready to have. And my resolve is only strengthened when I see a return to old practices at some of the very firms fighting reform,” the president said.

The Financial Services Roundtable, which represents 100 of the largest integrated financial services companies, said the White House proposal will restrict lending, increase risk, and decrease stability in the financial system.