NEW YORK, June 16 (Reuters) - St. Louis Federal Reserve Bank President James Bullard supports legislation that would require banks to spin off their derivatives dealing desks, a spokesperson said on Wednesday.
Bullard supports legislation offered by Sen. Blanche Lincoln, the spokesperson said. Lincoln on Monday floated a revised version of her proposal that would allow banks to continue hedging their own risks in-house by using swaps. It would still force banks to spin off their lucrative over- the-counter derivatives operations.
Bullard is the third Fed official to express public support for the Lincoln measure. Fed Chairman Ben Bernanke has expressed concern about the proposal, saying forcing some big banks out of the swaps business would weaken regulators’ oversight of banks.
Kansas City Fed President Thomas Hoenig said last week that risks surrounding derivatives dealing are inconsistent with the backstop the government provides banks for customer deposits.
However, he said it would be appropriate for banks to be able to use derivatives to hedge their own portfolios with swaps or offer them to customers in combination with traditional banking products. (Reporting by Mark Felsenthal; Editing by Diane Craft and Dan Grebler)