Obama Sends "Volcker Rule" Proposal to Congress

President Barack Obama sent Congress a five-page proposed plan March 3 that would ban banks from hazardous trading and impose limits on how large they can grow.

According to Bloomberg News, the proposal, which is named for its main proponent, former Federal Reserve Chairman and White House adviser Paul Volcker , is aimed at helping prevent a repeat of the worst financial crisis since the Great Depression by reducing risk-taking by banks.

Under the Volcker Rule, lenders would be prevented from trading solely for their own profit and stopped from acquiring more than 10 percent of the total liabilities in the banking system through acquisitions. The measure would instruct regulators to block mergers that would put bank market share over the limit, unless they were acquiring a failing bank with approval from regulators, as reported in the March 3 Bloomberg story.

Obama originally asked Congress in January to adopt the Volcker Rule to restrict risk-taking after financial companies worldwide reported more than $1.7 trillion in writedowns and credit losses following the subprime mortgage market collapse in 2007, according to Bloomberg. With the President’s submitted proposal, his administration is seeking a two-year transition period for banks to conform, which is shorter than the five-year transition period supported by House Financial Services Committee Chair Barney Frank, D-Mass.

In addition to placing caps on market share, the President’s proposal also would bar banks from owning or controlling hedge funds and private-equity firms. Furthermore, banks would be barred from acting as a prime broker to hedge funds they advise, according to Bloomberg.

Obama’s proposal has been added to the broader debate taking place in the Senate over a substantive regulatory reform bill. A proposal from the Senate Banking Committee is thought to be edging closer to completion and could see the light of day by mid-March or the end of the month.