LONDON Banks should be prohibited from trading their profits and simple ring-fencing won't work, former U.S. Federal Reserve Chairman Paul Volcker told a London audience on Thursday.
The so-called Volcker Rule is at odds with British proposals to allow separate retail and trading banking within a single bank, rather than breaking them into two.
The rule was part of the 2010 Dodd-Frank reform of Wall Street and prohibits U.S. banks from trading for their own profits in securities, derivatives and certain other financial instruments.
Asked what he thought of British proposals to separate banking functions between retail and investment within a parent company, Volcker said:
"I have a skeptical view of Chinese Walls. Why don't (you) just make them independent?"
Both approaches have come under criticism.
Opponents in the United States have said the Volcker Rule is unnecessary and that an ill-written ban could stifle bank liquidity.
In Britain, top lenders say the ring-fencing proposal would be far too costly.
Volcker said the key goal for policymakers was to ensure the existence of a banking system that would not suddenly be hit by investment losses.
A General Accounting Office report released on Wednesday said U.S. regulators do not yet know enough about Wall Street's proprietary trading to police it.
It also suggested proprietary trading may not be as lucrative as its reputation. The GAO found that only 3.1 percent or less of selected U.S. banks' combined quarterly revenues from all activities came from such trading.
This, though, included the period when investors took huge losses as the financial crisis hit. Proprietary trading by banks has been blamed in part for causing the crisis.
(Reporting by Jeremy Gaunt; Editing by Elaine Hardcastle)