Senate Banking Committee Holds Hearing on “Volcker Rule” Designed to Limit Banks’ Ability to Own, Invest In or Sponsor Hedge or Private Equity Funds
Hedge Fund Law Report
On February 2, 2010, Former Federal Reserve Chairman Paul Volcker testified before the U.S. Senate Committee on Banking, Housing and Urban Affairs on a key effort of the Obama Administration: to restrict commercial banking organizations from certain proprietary and speculative activities. On January 21, 2010, the White House issued a press release endorsing the so-called Volcker Rule, which would seek to restrict the size and scope of financial institutions with the goals of reining in excessive risk-taking and protecting taxpayers. With respect to scope, the proposal would seek to “ensure that no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit.” And with respect to size, the proposal would seek to “place broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits.” At the hearing, Senate Banking Committee Chairman Christopher Dodd (D-CT) announced his support for the proposal, saying that the proposal was “borne out of fear that a failure to act would leave us vulnerable to another crisis, and of frustration at the refusal of financial firms to rein in their reckless behavior.” We detail the key points from testimony at the hearing.