The Obama administration reasserted its commitment to banning proprietary trading by banks in a message to the U.S. Congress on Wednesday, despite signs lawmakers were unlikely to adopt such a rule.
In a document obtained by Reuters, the White House also called for limiting risky prop trading -- or the buying and selling of investments on financiers' own books unrelated to customers' needs -- at large, non-bank financial firms.
The message showed the White House is determined to push ahead with its so-called Volcker rule, first proposed in January to markets' surprise, as the U.S. Senate inched its way toward acting on new financial reform legislation.
Authored chiefly by White House economic adviser Paul Volcker, the rule arrived late in a reform debate that has raged for months since the severe 2008-2009 financial crisis tipped the U.S. economy into a deep recession.
Separately, Treasury Secretary Timothy Geithner said on Wednesday that he would not accept regulatory reform that failed to protect financial consumers. He called for a dedicated, independent authority to do that.
President Barack Obama in mid-2009 proposed a comprehensive package of reforms aimed at preventing another crisis. Most of them were embraced in a bill approved in December by the House of Representatives, but the Volcker rule was not in the mix.
By the time Obama and Volcker unveiled it almost six weeks ago, the Senate was well along in its debate about reforms. The Volcker rule complicated Senate Banking Committee Chairman Christopher Dodd's task of moving a reform bill to the Senate floor, and he has still not managed to do that.
Amid ferocious lobbying by banks and Wall Street firms opposed to reforms, Republicans have pushed the Senate toward a narrower, compromise bill that looks likely to exclude the Volcker rule and other key Obama proposals.
DODD-CORKER DEAL NEAR
Dodd and Republican Senator Bob Corker, a first-term banking committee member, on Wednesday were near a final deal on revised legislation, with sources saying a summary of their plan was being drafted for release within days.
Despite shaky political support for their approach, Dodd and Corker were expected to call for making a new government watchdog for financial consumers a part of the Federal Reserve, instead of making it an independent agency as Obama proposed.
The president's proposal to create an independent Consumer Financial Protection Agency to regulate mortgages and credit cards has been the main obstacle for weeks to a bipartisan Senate compromise on financial reform.
Senior Democrats in Congress on Tuesday sharply criticized the Dodd-Corker proposal. Representative Barney Frank, chief architect of reform in the House, told Reuters he thought it was a joke when he learned about putting the watchdog in the Fed, which has been criticized for its record on that front.
Frank said on Wednesday, however, that he could, if necessary, support putting the watchdog in the Treasury Department, an earlier Dodd proposal rejected by Republicans.
Billionaire financier George Soros said in New York on Wednesday that a consumer protection agency is urgently needed, but he called putting it in the Fed absolutely unacceptable.
Geithner's latest remarks on the issue at a meeting with consumer groups, perhaps in a significant omission, did not specifically say the watchdog must be a stand-alone agency.
BANKS BACK FED SUPERVISION
Lobbying groups for large banks sent a letter to lawmakers on Wednesday saying that the Fed should retain its role as the supervisor of large bank holding companies, such as Citigroup
Despite sharp criticism leveled at the U.S. central bank over its failures as a bank supervisor before the crisis, the approach backed by the lobbyists also will likely be included in the Dodd-Corker bill, said lawmakers, aides and lobbyists.
They said another component of the deal calls for forming a hybrid resolution fund for financing the dismantling of large financial firms that get into trouble.
Some money for the fund would be fronted by large firms, held by the Federal Deposit Insurance Corp, and invested in Treasury securities that banks could keep on their balance sheets, with insurance companies partly exempt, they said.
(Additional reporting by Rachelle Younglai and Caren Bohan; Editing by Andrew Hay)