Too big to fail

White House adviser Paul Volcker will urge Congress to curb the risks taken by large banks to help prevent them from being treated as “too big to fail,” according to a testimony.

Detailing a recent proposal known as “the Volcker rule,” the former Federal Reserve Chairman will tell lawmakers that commercial banks’ proprietary and speculative activities should not be protected by the government.

He will also urge international consensus on “appropriate” actions to restrict commercial banks’ activities.

Volcker – an adviser to President Obama whose star has risen in recent weeks – will appear before the Senate Banking Committee to defend the administration’s latest proposal to rein in the banks.

In January, Obama proposed limiting commercial banks’ ability to engage in proprietary trading, to end their ties to hedge funds and private equity funds and to restrict the future growth of large banks beyond a new market share cap.

In his testimony, Volcker will say there are strong conflicts of interest inherent in participation by commercial banks in proprietary or private investment activity.

“I am not so naive as to think that all potential conflicts can or should be expunged from banking or other businesses,” Volcker said in his prepared remarks.

“But neither am I so naive as to think that, even with the best efforts of boards and management, so-called Chinese walls can remain impermeable against the pressures to seek maximum profit and personal remuneration,” he said.

Taken on board as an adviser early on by Obama, Volcker initially seemed to have not much of an impact in the administration. But that has changed since the Democrats lost a special Senate election in Massachusetts and Obama moved to a more populist stance, proposing new bank restrictions.