Banks that are big enough to destabilize markets should be subjected to tighter regulatory oversight, and some rules ought to be internationally agreed, White House economic adviser Paul Volcker said Thursday.
In remarks prepared for delivery to the congressional Joint Economic Committee, Volcker said "substantial changes" were needed in oversight of financial firms.
"We must not again leave the markets so vulnerable that a breakdown will again threaten the national and world economies," said Volcker, the former Federal Reserve chairman who now heads up President Barack Obama's Economic Recovery Advisory Board.
His suggestions for regulatory reform included subjecting large banks to "particularly high" international standards for safety and soundness.
Trading and transaction-oriented firms that operate primarily in capital markets could be less intensively regulated. However, for those firms that are big and complex enough to be systemically important, capital, leverage and liquidity requirements should be imposed.
"Implicit in this approach is the need for strong cooperation and coordination among national authorities and regulators," he said.
"Some approaches -- accounting standards, capital and liquidity requirements, and registration and reporting procedures -- should be internationally agreed and consistent," he added.
Volcker said the current crisis grew out of serious and unsustainable imbalances in the U.S. and world economy, and economic policy going forward must take "appropriate measures" to deal with that problem.
He said risk management failed on Wall Street, and "lapses in financial regulation and supervision ... permitted institutional weaknesses to fester."
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