Kansas City Fed President Thomas Hoenig said he supports a proposal to spin off banks' derivatives trading desks advocated by Senator Blanche Lincoln.
Hoenig expressed his support for the so-called Lincoln proposal in a letter to the Senator dated June 10. The controversial proposal is part an overhaul of the financial system currently working its way into law.
"I have been a long-time proponent of limiting the derivative activities of commercial banks to only those designed to mitigate the institution's balance sheet risk," wrote Hoenig."
"Such (derivative trading) activities should be placed in a separate entity that does not have access to government backstops. These entities should be required to place their own funds at risk."
A bipartisan group of U.S. lawmakers will merge the Senate's financial regulation bill with a similar measure that passed the House of Representatives late last year.
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