February 12, 2010 / 2:04 PM / 9 years ago

Volcker: Choice is prop trading or bank charter

Chairman of the President's Economic Recovery Advisory Board Paul Volcker testifies before the Senate Banking, Housing, and Urban Affairs Committee on Capitol Hill in Washington in this February 2, 2010 file photo. REUTERS/Jim Young

NEW YORK (Reuters) - President Barack Obama’s economic adviser, Paul Volcker, said his proposed banking rules would force Goldman Sachs and other banks to give up their bank charters if they want to continue proprietary trading.

“The implications for Goldman Sachs or any other institution is, do you want to be a bank?” Volcker, a former chairman of the Federal Reserve, told the Financial Times. “If you don’t want to follow those (banking) rules, you want to go out and do a lot of proprietary stuff, fine, but don’t do it with a banking license.”

Last month, Obama proposed barring banks from betting in financial markets with their own money, known as proprietary trading. Called the “Volcker rule,” the proposal aims to prevent banks from taking risks that drag them to the brink of failure. The proposal sent shares of major banks tumbling.

Goldman Sachs Group Inc could be impacted by the Volcker rule because of its substantial proprietary trading operations. Goldman executives have repeatedly said they have no interest in shedding their bank charter.

A Goldman Sachs spokesman declined to comment.

Goldman and Morgan Stanley became bank holding companies in 2008 at the height of the financial crisis, giving them access to the Fed’s emergency lending facilities but also subjecting them to greater regulatory scrutiny and new capital requirements.

Reporting by Steve Eder; editing by John Wallace

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