Democratic Sens. Jeff Merkley of Oregon and Carl Levin of Michigan today unveiled an amendment to ban banks from trading for their own benefit rather than their customers, noting that Senate Banking Chairman Christopher Dodd and the Treasury Department back their effort.
The measure goes further than "Volcker rule" language that the Senate is debating as it considers Dodd's revamp of the nation's financial regulatory system, and it represents the latest drive to rein in Wall Street banks that played a role in the 2008 financial crisis.
The measure would prohibit conflicts of interest by underwriters with respect to securities that are being sold and direct the SEC to issues rules. It is a response to a SEC suit that claims Goldman Sachs failed to disclose that a major hedge fund had played a role in selecting a portfolio for a collateralized-debt obligation it issued in 2007 and was taking a short position against it.
The language would require large nonbanks to be subject to capital charges and limits to rein in their proprietary trading and investing in private equity or hedge funds.
"If a firm wants to spin the roulette wheel on risky bonds and securities, we are not going to stop them. But they need to take it outside of the banking system that millions of American families and small businesses depend on," Merkley said. He added he is optimistic the amendment will get a vote.
Although the measure has no GOP co-sponsors, it is likely to gain more support than other amendments to rein in big-bank practices.
For example, the chamber defeated Thursday, 61-33, an amendment by Sen. Sherrod Brown, D-Ohio, to impose size restrictions on the nation's largest banks: JPMorgan Chase, Bank of America, Goldman Sachs, Morgan Stanley, Wells Fargo and Citigroup. The Brown language would limit them to holding no more than 10 percent of U.S. deposits and restrict a bank's total assets to 2 percent of GDP, with a 3 percent cap for nonbanks.
This article appears in the May 15, 2010, edition of National Journal Daily PM Update.