White House recommits to 'Volcker rule' trade ban

RELATED NEWS Obama bid to rein in banks meets Senate resistance

The Obama administration said on Tuesday it is still committed to the "Volcker rule" to ban risky trading by banks, although Congress looks increasingly unlikely to adopt the rule as proposed.

"We're not walking away from and we're not watering down that proposal one bit," White House spokesman Robert Gibbs told reporters when asked about the outlook for the controversial rule put forward by former Federal Reserve chief Paul Volcker.

The statement from Gibbs came as the US Senate was closing in on long-awaited legislation to tighten regulation of banks and capital markets following the financial crisis. A bipartisan bill is expected to be released within days.

The Senate Banking Committee is considering including a watered-down version of the Volcker rule in the bill, which will also propose new rules to protect financial consumers and rein in derivatives markets.

Sources on Tuesday said senators may add to their bill language from a measure approved in December by the House of Representatives.

The House bill would allow, but not require, federal regulators to restrict proprietary trading at firms judged to pose a risk to the stability of the financial system. They could also order firms to exit the hedge fund business.

President Barack Obama stunned markets in January by proposing a harder-hitting rule at a news conference in which he stood next to White House economic adviser Volcker.

At that time, Obama proposed that "banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers."