John Gapper Paul Volcker distances himself from Glass-Steagall

Perhaps Paul Volcker is not so keen on Glass-Steagall after all.

I listened to the former chairman of the Federal Reserve at a conference in Florida organised by the CME Group today (immediately after he had walked out on an interview with Maria Bartiromo) and thought he might be softening his stance a bit.

Mr Volcker was one of the original voices calling for some division of risky financial activities from commercial banking, a division he himself compared to the 1933 Glass-Steagall Act which split banking from securities underwriting in the US.

However, he emphasised this afternoon that he was “not proposing a return to Glass-Steagall” because he regarded securities underwriting as “a reasonable banking function analogous to lending”. Nor did he want to bar banks from mergers and acquisitions advice.

The only activities he believed should be split out by legislation or regulation from commercial banks were hedge fund and private equity fund management and proprietary trading. Banks should be able to do “whatever Goldman Sachs and Morgan Stanley did in 1980″.

As a matter of history, I am not sure this is accurate since Goldman had an arbitrage trading desk – where Robert Rubin made his name – many years ago.

I also wonder whether allowing the merging of investment banking and commercial banking goes against Mr Volcker’s own analysis of what went wrong. As he put it:

“Commercial banks became much more complicated and adopted lots of functions that sit within capital markets . . . more complex, more complicated, more opaque, more difficult to manage and also bigger.”

Today, Mr Volcker did not sound too much at odds with Tim Geithner, the Treasury Secretary, and the rest of the administration. Indeed, he said he believed the latest version of financial reform put foward by the US Treasury could prevent banks getting too big.

The best moment of Mr Volcker’s talk was when he forgot the name of the Economic Recovery Advisory Board, the body that he chairs. It did not seem to bother him any more than leaving Ms Bartiromo in mid-interview.