A fisherman, with a Lutheran background, born two years before the Wall Street crash, Paul Volcker seems an entirely appropriate choice to reform the US banking system. The patience of a fisherman, the reforming zeal of a Lutheran and a childhood spent facing the consequences of the Great Depression seem the ideal qualifications.
The plan that he has championed and which Barack Obama would like to unleash, the so-called 'Volcker Rule', will prevent commercial banks from owning and investing in hedge funds and private equity, and limit the trading they do on their own account.
It is unwise to discount what Mr Volcker has to say - even his harshest critics do not deny that commercial banks need to be reined in after the excesses of the credit-driven bubble. It is the extent to which their wings need to be clipped that is the anvil of the debate.
Barclays Capital CEO Bob Diamond is a high-profile critic. He said last month there was no evidence to suggest that making big banks smaller and narrower was the answer. His argument has weight: it was not structure or size that led to the boom and bust, but a failure of management.
Assault on prop trading
To attack banks' proprietary activities is to miss the point entirely. Proprietary trading was not the cause of the financial crisis and makes up only a part of banks' overall business. It does, however, neatly encapsulate the idea of voracious, greedy bankers that many politicians have been happy to propagate.
In addition to being politically motivated, attempts to limit commercial banks' investment are, more critically, ill-conceived and impracticable.
Trying to limit banks from taking part in proprietary trading not only raises the question of what regulators mean by 'proprietary', but also how any law could effectively be put into practice: there is a fuzzy line between proprietary trading and trading on a client's behalf. Proprietary trading by the world's biggest commercial banks also provides invaluable liquidity to global markets, and in particular to the trade of US treasury debt. One unintended consequence of banning commercial banks from such trading could be that the US government struggles to roll over the estimated $8000bn-worth of its debt that is due to be refinanced in the next 18 months.
More importantly, as opposition forces gather to try to block the proposals in the US Senate, the debate is a distraction from the job in hand. How much time has already been wasted debating an impracticable plan based on political expedience? It is time the debate moved away from politics. Proprietary trading is political low-hanging fruit - attacking it merely detracts from the real job of putting in place a workable global framework that will allow the winding down of troubled banks without bringing down the entire system.
