Fed's Hoenig Supports Volcker Rule

Kansas City Federal Reserve President Thomas Hoenig signaled his support for the so-called "Volcker Rule," which limits proprietary trading at large banks, in a Wednesday speech on how financial foundations affect Main Street at a Chamber of Commerce event in Washington.

Shares across the financial sector were seeing mixed trading during the afternoon session. Goldman Sachs ( GS), JPMorgan Chase ( JPM) and Wells Fargo ( WFC) were lower by 0.4%, 0.3% and 1.1%, respectively. Bank of America ( BAC), which strengthened on its plans to forgive up to 30% of loan principal on troubled mortgages, rose 2.1% and Citigroup ( C), added 1%.
Thomas Hoenig
Kansas City Federal Reserve President Thomas Hoenig

Hoenig, known as the sole objector to the Federal Open Market Committee's continued use of phrasing promising exceptionally low rates for an "extended period," said U.S. financial reform should include some version of the rule to help ensure long-term stability.

The rule, which takes its name from former Federal Reserve chairman and current chair of President Obama's Economic Recovery Advisory Board, Paul Volcker, stems from the belief that banks' speculative trading activity not performed on behalf of clients contributed to the recent economic crisis and that greater transparency is needed to prevent a similar fallout in the future.

Preventing a future crisis is the motivation behind a financial reform proposal recently approved by the Senate Banking Committee that will now go to the U.S. Senate for a vote. The proposal includes curbs on banks' ability to engage in proprietary trading as well as limiting its ability to invest in or sponsor hedge funds and private equity funds.

Highlighting the four main points of the proposal on Tuesday, Senator Christopher Dodd (D., Conn.) said it will end bailouts, create an advance warnings system in the economy, increase transparency and protect consumers from unsafe financial products.

"We will have reform this year," Dodd said in a statement.

--Written by Melinda Peer in New York.