Paul Volcker scored a major victory yesterday as Barack Obama endorsed his proposal for tough new bank regulations over the objections of Tim Geithner. Obama even dubbed the proposal, which would prevent banks from making speculative investments that don't benefit their customers, the “Volcker Rule.” It’s a major sign that Geithner, who favors much milder reforms, is losing influence, the Washington Post reports.
Volker has argued publicly, for months, that big banks that provide the "core of the nation's credit and financial system" should not be allowed to engage in "highly risky entrepreneurial activity." His supporters are delighted. “This is a complete change of policy. It’s a fundamental shift … in a new and much more sensible direction,” one MIT professor tells the Washington Post. But the industry was predictably chaffed—they preferred Geithner’s less restrictive proposal to boost the banks’ required capital reserves. “His influence may have slipped,” says one senior industry official. “But you could also argue that it wasn't Geithner who lost power. The president needed Volcker politically” to look tough on banks.