U.S. Senate Banking Committee members are considering a narrow version of the so-called Volcker rule, which was proposed by the White House to curb banks' risky activities, sources familiar with the panel's thinking said on Tuesday.
Senators are considering giving a federal banking regulator the authority to impose limits on a bank's proprietary trading only if the regulator thinks the bank's activities threaten its safety and soundness or the stability of the financial system.
The rules would only apply to banks with assets over $50 billion, said the sources, who requested anonymity because the bill is in flux.
In January, the White House unveiled a proposal inspired by the administration's economic adviser, former Federal Reserve Chairman Paul Volcker. The administration proposed to limit banks' proprietary trading, get them out of the hedge fund and private equity business and cap their future growth.
But the Senate Banking Committee, which has been crafting a financial reform bill for months, was not enamored with the last-minute White House proposal.
Now the committee is considering a narrow interpretation of the Volcker rule that is similar to language in the financial reform bill passed by the House of Representatives in December.
The federal banking regulator could require the large banks to stop proprietary trading or divest their hedge fund or private equity business, but the prohibitions are not mandatory, the sources said.
That means that big banks' risky activities would not automatically be subjected to more regulatory supervision and scrutiny. This is similar to the Federal Reserve's current authority over bank holding companies. The Fed can restrict or stop a bank's activity that is seen as undermining the safety and soundness of the firm.
Currently, banks are supervised by a hodgepodge of agencies, including the Fed, Office of Thrift Supervision, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.
Senate banking committee members are considering stripping the Fed of its supervisory powers and handing them over to a consolidated federal banking regulator and the FDIC.
(Editing by Andrea Ricci)