Sen. Carl Levin (D-Mich.) wants regulators to be more aggressive with the Volcker rule to prevent major banks from hedging bets against their clients’ interests.
Levin, the chair of the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations, had a key role in drafting the Volcker rule last year while legislators drafted the Dodd-Frank Act, Reuters.com reports.
According to Levin, banks were selling securities to clients and then taking positions betting against those securities right up until the 2007-2009 financial crisis.
The intention of the Volcker rule is to ban proprietary trading by banks that receive government backstops like deposit insurance or that have access to the Federal Reserve’s discount windows.
Levin said that he is disappointed in the proposed version of the Volcker rule that was released last month by banking regulators, which he said gives banks too much wiggle room to maneuver around the law’s crackdown on conflicts of interest, according to Reuters.com.
The current version of the Volcker rule includes language that, according to Levin, allows banks to take positions that may conflict with their clients’ interests as long as they disclose that a potential conflict may exist.
"That's not nearly tough enough for me," Levin said at an event hosted hosted by Americans for Financial Reform, Reuters.com reports.
Levin wants regulators to go further and require clients to put in writing that they acknowledge that a bank may be taking positions that conflict with a security marketed by the bank.