WASHINGTON -(Dow Jones)- A pair of U.S. Senate Democrats pushing strict limits on banks’ ability to engage in proprietary trading said Monday they have support from key lawmakers and the Obama administration on a proposal the financial services industry has vocally opposed.
Sens. Jeff Merkley (D., Ore.) and Carl Levin (D., Mich.) are pushing an amendment to the broader financial regulatory legislation that would prevent a commercial bank from using its own capital to invest in the markets or to sponsor a hedge fund. Large non-bank financial firms engaging in proprietary trading would face higher capital requirements.
“Taxpayers ended up holding the bag when those bets didn’t pay off,” Levin said of the role of proprietary trading in contributing to the recent financial crisis.
The amendment is similar to an administration proposal that was dubbed the ” Volcker Rule” because of its support by former Federal Reserve chairman Paul Volcker. Merkley said Monday that Volcker supports their proposal to put that proposal into practice, as does the Treasury Department and Sen. Christopher Dodd (D., Conn.), chairman of the Banking Committee and who is managing the financial regulation bill during Senate floor debate.
Merkley and Levin have yet to attract any Republican support for their amendment but do have 15 additional cosponsors who have signed on to the proposal. Merkley said he was optimistic they would be able to get a vote on their amendment as the Senate considers the legislation this week.
“A bank holding company is a house with many rooms. The room where the high- risk trading occurs should not be under the same roof,” Merkley said of the current mix of commercial banking and trading.