Some interesting bits from the Senate Banking Committee hearing with former Federal Reserve Chairman Paul Volcker and Treasury 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 decision if the proprietary trading ban was put in place. 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 plan 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 dont think 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 banks 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 banks 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. Weve made that clear 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 dont believe myself that being big is necessarily bad, but I do believe that being big and believing the government is going to bail you out is bad bad.
5) Sen. Mike Johanns (R., Neb.) accused the White House of trying to add the Volcker Rule onto an already confusing proposal.
Mr. Volckers response:
I tell you sure as I am sitting here, that if banking institutions are protected by the taxpayer and they are given free reign to speculate, I may not live long enough to see the crisis, but my soul is going to come back and haunt you.