Former Fed Chairman Paul Volcker is scheduled to meet with Secretary Timothy Geithner and White House aides today to discuss, among other things, the “Volcker rule” and financial regulatory reform.
The Volcker Rule
The rule, which has gained support in the Senate despite strong opposition from financial firms, would restrict some of the more risky activities taken by large financial institutions using taxpayer dollars, particularly hedge fund and private equity financing, as well as proprietary trading. If passed, many large financial institutions would be forced to sell off or separate their proprietary trading divisions, potentially costing them billions of dollars.
Paul Volcker was the Chairman of the Federal Reserve from 1979 to 1987, serving under both Presidents Carter and Reagan. Before that, he was the head of the Federal Reserve Bank of New York. Mr. Volcker was chosen by President Obama in November of 2008 to head his Economic Recovery Advisory Board.
Back to the Basics
The basis of the idea that banks should not be able to use insured deposits to conduct risky, profit-targeted investing goes back to the Glass-Steagall Act, which was passed after the Great Depression but repealed in 1999. Many blame this for creating the culture of too-big-to-fail as it allowed major financial firms to merge their retail and investment banking divisions.
Volcker will talk to Secretary Geithner and White House aides today in an attempt to gain support for the bill, and push for stronger language in the legislation that will require, rather than suggest, that banks enact changes in their proprietary trading and private equity activities.
Here is what President Obama had to say about the “Volcker rule” back in January of 2010: