Quick Notes From the Volcker Hearing
Some fascinating bits from the Senate Banking Committee hearing with former Federal Reserve Chairman Paul Volcker and Reserves Department Deputy Secretary Neal Wolin:
1) Mr. Volcker said in response to a question from Sen. Mark Warner (D,. Va.) that Morgan Stanley and Goldman Sachs Group Inc. would have to make a choice if the proprietary trading ban was place in house. He said they would either have to shed their proprietary trading operations or shed their banking licenses.
2) Mr. Wolin said the White House has not finalized the details of its plot to curb the size of financial institutions going forward.
?We do not have the details of that fully nailed down. We want to make sure that we get it right. We want to work with the regulators, this committee, in coming forward with this proposal. We don?t reckon it ought to be a limit that is currently binding.? He said they were still trying to determine the ?denominator? in what would be measured to curb a bank?s size.
3) Mr. Volcker said government officials ?need to do some rethinking of Basel 2 with some explicit overall leverage limits. A lot of the Basel 2 stuff has to be clarified and made, I agree, more binding.? He said Basel 2 relied on bank?s internal models and credit rating agencies, and ?both of those have been somewhat discredited in the past couple of years.?
Mr. Wolin quickly stepped in, saying ?we do want to go forward with the implementation of Basel 2. We?ve made that apparent? to foreign counterparts. But he added that additional leverage constraints would have to be adopted.
4) Top Republican on the Committee Sen. Richard Shelby of Alabama said:
?I don?t believe myself that being huge is necessarily terrible, but I do believe that being huge and believing the government is going to bail you out is terrible terrible.?
5) Sen. Mike Johanns (R., Neb.) accused the White House of trying to add the Volcker Rule onto an already confusing proposal.
Mr. Volcker?s response:
?I tell you sure as I am sitting here, that if banking institutions are confined by the taxpayer and they are agreed free reign to speculate, I may not live long sufficient to see the crisis, but my soul is going to come back and haunt you.?