Yes, we can...ban prop trading

President Obama is right to propose the so-called Volcker Rule, which will ban banks from trading with federally insured deposits, according to respondents to a FinanceAsia poll.

Almost two-thirds of readers who voted in the poll were in favour of the ban, outnumbering the No votes by more than two to one. Of the 165 voters, 63% supported the so-called Volcker Rule, named after Paul Volcker, the former chairman of the Federal Reserve who is now President Obama's most senior economic adviser. Just 30% of respondents opposed the ban and 6% were unsure.

It is a result that suggests Obama should have no trouble passing the rule -- if the financial community itself recognises the merit of the proposal, it stands to reason that lawmakers will give it a green light. Unfortunately, few things in Washington stand to reason.

If the rule does pass, it will help to reduce the moral hazard that government intervention has created -- banks that are "too big to fail" (and know it) have less incentive to rein in their risk-taking, but a ban on proprietary trading would at least prevent them from trading with depositors' money.

Some sceptics argue that there is a fine line between prop trading and making markets, and that it is therefore impractical to impose a ban. It is certainly true that it's impossible to draw a definite line, but restrictions can help to reduce risk without limiting banks' ability to provide a service to their clients.

Check out the Polls box on the right-hand side of the FinanceAsia home page to vote in this week's poll.

Photo by AFP Photos.