WASHINGTON, Feb 12 (Reuters) – A member of the U.S. Senate Banking Committee said on Friday he is writing legislation that would apply more widely a White House proposal to limit risky investing, extending the reach to nonbank financial institutions as well as to banks.
Jeff Merkley, a a first-term Democrat from Oregon, said in a letter to colleagues that his bill would apply to nonbank financial institutions large enough to be “systemically critical.”
The bill would broaden a proposal made last month by the White House known as the Volcker rule, because it was backed by Paul Volcker, an economics adviser to President Barack Obama and a former chairman of the U.S. Federal Reserve.
The Merkley bill would prohibit these firms “from owning or operating hedge funds and private equity funds and from engaging in proprietary trading,” or using their own capital to pursue above-market returns unrelated to customer needs.
Merkley said the limits would curb “taxpayer-backed gambling” of the sort pursued by major investment and commercial banks in the run-up to the financial crisis of 2008 and 2009 that shook markets worldwide, leaving many institutions backed by taxpayers.
“Reasonable market-making, underwriting and risk management activities should still be permitted, as long as they are not used as a backdoor means to place bets on volatile and illiquid assets,” Merkley said in the letter.