DUBLIN - A new U.S. rule banning banks from making big trading bets with their own money could help efforts to split commercial banks from broker-dealer activities, a top U.S. regulator said on Friday.
U.S. authorities agreed this week on a final draft of the Volcker Rule, named after former Federal Reserve Chairman Paul Volcker, which seeks to ensure banks can't make speculative trades that are so large and risky that they threaten individual firms or the wider financial system.
Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp (FDIC), which guarantees deposits at U.S. banks, said if the new rule is successful it could add momentum to his push to split up large banks.
"I think it takes an important part of the high-risk trading activity out and away from the safety net," Hoenig told reporters after giving a speech in Dublin.
"I don't necessarily think it will stop the momentum, especially if it's successful and helps mitigate some of the surprises we've had ... It's success would be very useful, and I think it will be successful."
Hoenig, an outspoken critic of the "universal" banking model in which banking groups combine retail and investment banking functions, wants banks split along business lines to reduce the risk that taxpayers will have to pay up when a bank's riskier investment bank operations get into trouble.
However Treasury Secretary Jack Lew has indicated that the Obama administration would prefer to finish implementing current legislation rather than look at new ideas for reforming banks, meaning it is unlikely the biggest U.S. banks would be split any time soon.
Since the repeal in the 1990s of the Glass-Steagall Act, which separated commercial and investment banking, U.S. banks have become bigger and more complex.
In his speech, Hoenig said the five largest U.S. financial firms - a category which includes the likes of Citi and JPMorgan Chase - now controlled 55 percent of industry assets compared with 20 percent in 1990.