WASHINGTON, April 17 A top U.S. bank regulator said on Wednesday the country must do more to protect taxpayers from having to spend billions on bank bailouts, one of a growing chorus of critics of the current rules.
Tom Hoenig, vice chairman of the Federal Deposit Insurance Corp (FDIC), said in New York that the Volcker rule - which would bar banks from betting their own money on financial markets but has not yet been finalized by regulators - would not go far enough.
Instead, Hoenig wants to force banks to hive off risky activities such as trading and creating derivatives and to eliminate any taxpayer subsidy for these businesses.
"A safety net only for commercial banking activities provides stability to critical financial infrastructure," Hoenig said in prepared comments.
Hoenig has repeatedly laid out this view of how to restructure the banking sector in recent years. The debate over whether U.S. officials have done enough to prevent a repeat of the 2007-2009 financial crisis has been heating up again in Washington.
Politicians clamped down on the banking sector after the credit meltdown, forcing them to raise far more shareholder capital to fund their business and making risky trading activities prohibitively expensive.
But many question whether the 2010 Dodd-Frank law and other measures have done enough to crack down on the country's largest banks such as JP Morgan Chase & Co, Citigroup and Bank of America Corp.
Hoenig's comments follow a move by two senators to draft a bill that would force banks to hold far more capital and throw out international bank capital rules. There is little chance, however, that such proposals would make it through a divided Congress.
Commercial banks could continue to engage in wealth management and the underwriting of new issues of stocks and bonds under Hoenig's proposal.
Money market funds and the repo market - parts of the so-called shadow banking system through which banks fund large parts of their daily cash needs - should be taken out from beneath taxpayer safety nets such as deposit insurance or the Fed's discount window, Hoenig said.
He also pushed back against claims by some groups that small banks would experience tougher competition if the big banks were broken up and had to start focusing on local markets instead of on global capital market activities.
"It would seem that only if they were forced to do so, would they compete with the smaller banks. This is untrue," Hoenig said.