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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."
May 25 -
WASHINGTON — After refusing to answer questions for weeks about whether banks should be allowed to continue to operate as swaps dealers, Senate Banking Committee Chairman Chris Dodd quietly filed an amendment Tuesday that would give regulators the power to gut such a proposed ban.
May 18
WASHINGTON — Rep. Jack Reed, D-R.I., a key Senate negotiator on the financial overhaul bill, on Tuesday echoed
Reed indicated that he favors an amendment authored by Sens. Carl Levin, D-Mich., and Jeff Merkley, D-Ore., to ban proprietary trading in banks over a proposal from Senate Agriculture Committee Chairman Blanche Lincoln, D-Ark., to force banks to spin off their swaps businesses.
"I think that Merkley/Levin is more targeted, maybe more effective," Reed told reporters, but he declined to say whether the Lincoln language would be stripped from the final version of the bill.
Earlier in the day, Frank said the proposal to stop banks from 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."
Frank will chair the House/Senate conference committee on the financial overhaul bill.
The Senate bill already includes limits on high-risk trading by banks, known as the "Volcker Rule," but the Merkley/Levin amendment strengthens that prohibition.
Reed's endorsement of Merkley and Levin's amendment is significant because Reed is a member of the conference committee that will hammer out the final bill, and he has been the lead negotiator on regulating derivative products.
"I think that Merkley and Levin [amendment] is good for separating out proprietary trading from traditional activities on behalf of clients that banks have been doing without particular controversy for decades," Reed said. It would keep banks from "taking their money and dumping it into the securities market and trading to make a profit, not to benefit the client."
Separately, Levin said he is working with the Senate conferees to include his Volcker Rule amendment in the final bill. The amendment got pulled from the Senate floor over an unrelated dispute about exemptions for auto dealers.
The Volcker rule language "can be strengthened in conference," Levin said, noting that his amendment is still considered "germane" to the underlying bill, which means conferees can adopt it.
Still, lawmakers are going to face some pushback from Agriculture Committee members if they attempt to yank Lincoln's swaps language from the final version. "I intend to uphold what we came out of the Agriculture Committee with and which was adopted by the Senate," said Sen. Tom Harkin, D-Iowa, who is also a member of the conference committee.
Reed said conferees will look at both the Lincoln and Merkley/Levin proposals. "You're going to start with two principled approaches to the similar issue, and my guess is the way things work, the best elements of both will be retained," he said.
