Senators Merkley and Levin and Experts Call for Big Banks to Get Back to Banking, Push for Merkley-Levin Provision

For Immediate Release

June 17, 2010


Washington, DC Senators Jeff Merkley (D-OR) and Carl Levin (D-MI) joined with experts from Americans for Financial Reform to call for banks to get back to the basic commercial banking business of making loans to consumers and businesses instead of the ‘proprietary trading’ they do on their own account. As Congress heads into the final stages of Wall Street reform, the Volcker Rule strengthened by the Merkley-Levin amendment must be included in the final legislation and conferees must resist any attempts to put loopholes in the provision.  

“Our focus throughout this process has been to put measures in place that will prevent another financial meltdown,” Merkley said.  “American citizens understand that our economy was severely damaged by the high-risk bets of Wall Street firms.  The firms got the short-term profits and the public was left holding the bag when the bets went bad.  A strong ban on high-risk trading is a critical component of Wall Street reform.  Wall Street may want to go on with business as usual, but the American public can’t be expected to foot the bill for their bad investments again.  It’s encouraging to see growing support for the Volcker Rule provision that Senator Levin and I proposed and I look forward to seeing it become part of the final bill.”

“All that we have learned over the last few months points to an inescapable conclusion: Wall Street needs a cop on the beat,” Levin said. “The reckless trading and conflicts of interest that constituted business as usual on Wall Street helped dig the economy into a deep ditch. I hope the final version of Wall Street reform legislation will include a strong version of the Merkley-Levin provisions to rein in risky proprietary trading and end conflicts of interest in the assembly and sale of financial instruments.”

“The dramatic rise in trading by large financial institutions for their own accounts drove up leverage and created new forms of systemic risk as both banks and nonbanks became dependent on short-term borrowing from other financial firms. Proprietary trading was at the epicenter of the financial crisis, inflating balance sheets and creating a web of interconnections that threatened the system as a whole. If left unrestrained, both finance and the economy it serves will remain vulnerable to future crises,” said Jane D’Arista, Political Economy Research Institute at University of Massachusetts, Amherst.

“The experience of State Street in Massachusetts – that’s the $150 billion Boston-based bank — is the best test case for whether we have adequately formulated the Volcker Rule. State Street sponsored higher-risk off-balance sheet investment vehicles; those vehicles created capital and funding pressures for the bank during the credit crisis; and sure enough, the taxpayer came to the rescue. The sponsorship of hedge funds, and private equity funds, and other off-balance sheet investment vehicles, has nothing to do with the reason we have FDIC-insured commercial banks in the first place. Simply removing hedge fund sponsorship from the bank legal entity itself, or just limiting banks to a small investment of their own dollars, doesn’t really help. We need to go further,” said Raj Date, Executive Director of the Cambridge Winter Center, a non-profit, non-partisan think tank focused on U.S. financial services policy.

For more on opposing loopholes to the Volcker rule see AFR’s letter to the Hill click here