Obama's Top Economic Adviser Offers Free Market Speech; Volcker's Words Defintely Bullish for Risk / Venture Capitalism...

WASHINGTON (Dow Jones)--Former Federal Reserve Chairman Paul Volcker on Thursday suggested that large non-banking institutions shouldn't be subject to the same intensity of regulation as banks because it might imply they have a government guarantee if they falter. "I have my doubts - strong doubts - that we will want to determine that circle explicitly: which institutions are in and which by implication are out," Volcker said in remarks at an event organized by the Bretton Woods Committee. "I suspect we could all agree we should not encourage, as a matter of lasting policy, the view that some financial institutions are practically assured of official support, which in the midst of the present turmoil is the present presumption." Volcker, who now serves as a top economic aide to President Barack Obama, made it clear he thinks the Federal Reserve should play some role in a new future systemic regulatory scheme. But he questioned if the Fed ought to directly regulate large non-banking firms deemed "too big to fail" as well as commercial banks because of the message it may send to the markets. "How far, among all the insurance companies, hedge and equity funds, financial affiliates of industrial and commercial firms, and others should the extension of official supervision and the Federal safety net be extended?" he asked. "There are to my mind strong conceptual and practical reasons for distinguishing in regulatory approach between institutions engaged in banking and other financial institutions," he added. In his speech, Volcker lamented the fact that many commercial banks have gotten away from their core business and engaged in making risky investments. And while he did not call for a full reinstatement of the Glass-Steagall Act, which created a wall between commercial and investment banks, he indicated that some changes in the law may be in order. "The logic calls for prohibition of banking organizations sponsoring hedge funds or equity funds, and strict supervision, with appropriate capital and collateral requirements, of proprietary securities and derivatives trading," he said. Volcker laid out a few regulatory changes he feels are in order for large non-banking firms, saying he would like to see hedge funds and equity funds register with federal regulators. Other reforms he advocated included requiring firms to report their business models and large positions and imposing collateral requirements and leverage restrictions. "To my mind, however, a temptation should be resisted to extend to those non-banking institutions a presumption of 'too big to fail,' of access to Federal insurance and of Federal Reserve financial support," he said.-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@dowjones.com Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=GkIz17osQJufzhTfqirNCw%3D%3D. You can use this link on the day this article is published and the following day. (END) Dow Jones Newswires April 23, 2009 15:36 ET (19:36 GMT) Copyright (c) 2009 Dow Jones & Company, Inc.- - 03 36 PM EDT 04-23-09