WASHINGTON — House Financial Services Committee Chairman Barney Frank, D-Mass., on Tuesday said the White House's proposal to stop banks from certain risky trading practices would "very likely" be in the final financial overhaul, but he said a separate provision to force banks to spin off their derivatives businesses "goes too far."
Mr. Frank's comments are significant because he is a central player in the effort to reconcile a financial overhaul bill that passed the House of Representatives in December and a separate bill that passed the Senate last week. The limit on high-risk trading, known as the "Volcker Rule," was in the Senate bill but not the House measure.
Mr. Frank's vocal support for the Volcker Rule increases the chances it will be incorporated into the final legislative package, which could be signed into law by July 4.
But Mr. Frank's opposition to the derivatives spin-off proposal, which has been championed by Senate Agriculture Committee Chairman Blanche Lincoln, D-Ark., raises the chances that this provision will likely be altered or stripped out completely because Mr. Frank's comments on it were pointed.
"Banks ought to be able to hedge their own risks," Mr. Frank said. He said banks would be prohibited from overly risky derivatives activities by the Volcker Rule and that the separate provision wouldn't be necessary.
"I don't see the need for a separate rule regarding derivatives because the restriction on banks engaging in proprietary activities would apply derivatives as well as everything else," Mr. Frank said.
He said banks would be able to do derivatives under the rules established by the bill "for their own commercial risk or their customers, but they will not be able to run separate profit centers where they trade them."
Mr. Frank's comments were delivered in a speech at the Mayflower Hotel in Washington, D.C.
Lawmakers plan to begin meeting soon to work through more than a dozen differences between the House and Senate bills in an effort to reconcile them. After that process is complete, the House and Senate will have to vote again on the compromise, which would later be sent to the White House for enactment.