MILAN, Sept 10 Banks should not be allowed to
own hedge funds or equity funds and their trading activity
should be limited, former Federal Reserve Chairman Paul Volcker
said in an interview with Il Sole 24 Ore on Thursday.
"A bank that generates the major part of its income from
trading should not be allowed to have a banking license,"
Volcker, an economic adviser to the Obama administration, said.
Asked about introducing caps for bankers' pay, Volcker said
bankers would find a way around that.
"We're seeing it already; it's obscene what they're
earning," he said.
One year after the Lehman Brothers collapse, Volcker said he
feared Wall Street would return to its old ways and "we will
miss the train for reform".
He said he did not think inflation was an immediate threat
given the high unemployment and weak global economic growth.
Asked about the high U.S. deficit, Volcker said it was not a
problem for the time being.
To tackle the crisis the Federal Reserve had injected an
enormous amount of liquidity into the system, he said.
"For now we can absorb this but it could be a problem when
the economy starts to grow again".
Volcker said the rating agencies had contributed to the
breakdown of the financial system.
"A possible solution might be to de-monopolise the sector.
Maybe there should be many more of them... And they could be
paid by investors," he said.
(Reporting by Stephen Jewkes; Editing by Hans Peters)