The United States government should not stand behind banks that mix their trading with their banking activities, former Fed Chairman Paul Volcker told CNBC Monday.
“If you don’t have this rule [known as the Volcker rule or Volcker plan], what stops any financial institution from buying a bank, saying I’m a bank and getting a banking license, mixing up their trading activities with their banking activities,” said Volcker, as he discussed financial reform, now being debated in Congress, including derivatives. Volcker is chairman of the Economic Recovery Advisory Board, under Obama.
“We do not want the United States government implicitly standing behind the trading activities of these institutions.”
Volcker said the practice of combining trading with banking in one institution affects few banks—about five—but that those five are very large institutions.
"It's very hard to make a distinction between a bank and holding company and its affiliates," he added. "They are all under common management: They are all, at the end of the day, mutually supportive."