Ex-US Treasury secretaries back Volcker rule

* Ex-Treasury secretaries endorse “Volcker Rule”

* Rule would ensure focus on lending duties

WASHINGTON, Feb 21 (BestGrowthStock) – Five former Treasury
secretaries urged Congress on Sunday to bar banks that receive
federal support from engaging in speculative activity unrelated
to basic bank services.

“The principle can be simply stated,” the five said in a
letter to The Wall Street Journal. “Banks benefiting from
public support by means of access to the Federal Reserve and
FDIC insurance should not engage in essentially speculative
activity unrelated to essential bank services.”

The Treasury secretaries said, however, that hedge funds,
private-equity firms and other organizations engaged in
speculative trading should be “free to compete and innovate”
but should not expect taxpayers to back up their endeavors.

“They should, like other private businesses, … be free to
fail without explicit or implicit taxpayer support,” said the
former secretaries for both Republican and Democratic
presidents.

The appeal comes as Senate lawmakers are pressing ahead
with efforts to produce a financial regulatory reform bill that
would curb some of the practices that led to the 2008 financial
crisis.

Several major financial firms collapsed, were sold or had
to be bailed out after a bubble in the housing market popped,
causing real estate prices to plummet and leaving markets
uncertain about the value of billions of dollars in
mortgage-backed securities.

The liquidity crisis that followed threatened the financial
system and deepened a U.S. recession that became the worst
since the Great Depression.

The regulatory reform proposal endorsed by the five former
Treasury secretaries is the so-called Volcker Rule, formulated
by former Federal Reserve Chairman Paul Volcker, a top economic
adviser to President Barack Obama.

Obama surprised the financial markets in late January when
he announced the proposal, which calls for new limits on banks’
ability to do proprietary trading, or buying and selling of
investments for their own accounts unrelated to customers.

Volcker told the banking committee earlier this month that
a failure to adopt trading limits would lead to another
economic crisis and warned “I may not live long enough to see
the crisis, but my soul is going to come back and haunt you” if
proprietary trading is not curbed.

The five former Treasury secretaries — Michael Blumenthal,
Nicholas Brady, Paul O’Neill, George Shultz and John Snow —
said in their letter that banks should not be involved in
speculative trading activity and still receive taxpayer
backing.

“We fully understand that the restriction of proprietary
activity by banks is only one element in comprehensive
financial reform,” their letter said. “It is, however, a key
element in protecting our financial system and will assure that
banks will give priority to their essential lending and
depository responsibilities.”

Stock Report

(Editing by Philip Barbara)

Ex-US Treasury secretaries back Volcker rule