Too big to fail

White House adviser Paul Volcker will urge Congress to curb the risks
taken by large banks to help prevent them from being treated as “too
big to fail,” according to a testimony.

Detailing a recent
proposal known as “the Volcker rule,” the former Federal Reserve
Chairman will tell lawmakers that commercial banks’ proprietary and
speculative activities should not be protected by the government.

He will also urge international consensus on “appropriate” actions to restrict commercial banks’ activities.

Volcker
– an adviser to President Obama whose star has risen in recent weeks –
will appear before the Senate Banking Committee to defend the
administration’s latest proposal to rein in the banks.

In
January, Obama proposed limiting commercial banks’ ability to engage in
proprietary trading, to end their ties to hedge funds and private
equity funds and to restrict the future growth of large banks beyond a
new market share cap.

In his testimony, Volcker will say there
are strong conflicts of interest inherent in participation by
commercial banks in proprietary or private investment activity.

“I
am not so naive as to think that all potential conflicts can or should
be expunged from banking or other businesses,” Volcker said in his
prepared remarks.

“But neither am I so naive as to think that,
even with the best efforts of boards and management, so-called Chinese
walls can remain impermeable against the pressures to seek maximum
profit and personal remuneration,” he said.

Taken on board as
an adviser early on by Obama, Volcker initially seemed to have not much
of an impact in the administration. But that has changed since the
Democrats lost a special Senate election in Massachusetts and Obama
moved to a more populist stance, proposing new bank restrictions.