Yes, we can...ban prop trading

FinanceAsia readers agree with the US presidentÆs plan to ban deposit-taking institutions from proprietary trading.
 Paul Volcker, the adviser behind President Obama's proposed restrictions on banks.
Paul Volcker, the adviser behind President Obama's proposed restrictions on banks.

President Obama is right to propose the so-called Volcker Rule, which will ban banks from trading with federally insured deposits, according to respondents to a FinanceAsia poll.

Almost two-thirds of readers who voted in the poll were in favour of the ban, outnumbering the No votes by more than two to one. Of the 165 voters, 63% supported the so-called Volcker Rule, named after Paul Volcker, the former chairman of the Federal Reserve who is now President Obama's most senior economic adviser. Just 30% of respondents opposed the ban and 6% were unsure.

It is a result that suggests Obama should have no trouble passing the rule -- if the financial community itself recognises the merit of the proposal, it stands to reason that lawmakers will give it a green light. Unfortunately, few things in Washington stand to reason.

If the rule does pass, it will help to reduce the moral hazard that government intervention has created -- banks that are "too big to fail" (and know it) have less incentive to rein in their risk-taking, but a ban on proprietary trading would at least prevent them from trading with depositors' money.

Some sceptics argue that there is a fine line between prop trading and making markets, and that it is therefore impractical to impose a ban. It is certainly true that it's impossible to draw a definite line, but restrictions can help to reduce risk without limiting banks' ability to provide a service to their clients.

Check out the Polls box on the right-hand side of the FinanceAsia home page to vote in this week's poll.

Photo by AFP Photos.

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