WASHINGTON (CNNMoney.com) -- The fate of President Obama's latest proposal to rein in banks was thrown into doubt on Tuesday after it got a chilly reception from key lawmakers.
The Senate Banking Committee grilled Obama adviser Paul Volcker who has, for months, been championing a proposal to curtail so-called proprietary trading.
The aim is to stop big banks from making trades on their own accounts, especially since commercial banks have access to funds back-stopped by the government.
President Obama, in formally announcing the proposal last month, dubbed it the "Volcker rule."
Volcker said the rule is necessary to prevent the next financial crisis, since big commercial banks have grown even bigger and continue to make risky bets.
"If banking institutions are given protection by the taxpayers -- I may not live long enough to see the next crisis -- but my soul is going to come back to haunt you," Volcker said.
After two Democrats and most Republicans peppered Volcker with tough questions, Sen. Chris Dodd, D-Conn., the committee's chairman, warned that the proposal may have come too late.
Dodd pointed out the Senate has been working for months on regulatory reform and "there's only so much that we will tolerate in a given period of time," he said.
"I don't want want to be in a position where we ended up doing nothing, because we tried to do too much," Dodd said.
More than a year after the September 2008 meltdown of the financial system, Congress has debated but not yet enacted any significant curbs on the risky practices that led to the crisis.
On Tuesday, some Republicans even questioned the timing of Obama's announcement of the Volcker proposal. White House support came six months after the administration released its original regulatory reform package, and two days after Democrats lost their filibuster-proof majority in the Senate.
Volcker denied that White House support for the proposal was politically motivated, assuring Dodd that Obama had assured him of White House support a few weeks before the Massachusetts election.
Senators also zeroed in on other aspects of the administration's latest round of regulatory proposals, including a provision that would strengthen limits on how much market share any one bank can control.
"I know where you're headed and I don't completely disagree with it, although the challenge comes in how do you write it out," said Sen. Mark Warner, D-Va.
Warner also questioned whether new rules would spur banks to move their charters offshore. "Then we create a next generation of Cayman Island-based firms," he said.
Sen. Bob Corker, R-Tenn., who has been working with Warner on the legislation, was more blunt.
"There's not a single bank holding company that had a commercial bank that had material issues that were related to proprietary trading," Corker said.
The proposals are aimed at the nation's largest banks including JPMorgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500), and Morgan Stanley (MS, Fortune 500) and Goldman Sachs (GS, Fortune 500). Shares of all those banks fell sharply after the announcement.
If the Volcker rule can't get through the Senate banking panel, it's probably short lived.
The committee will take up the issue again on Thursday. It is set to hear from bank executives including Gerald Corrigan, managing director of Goldman Sachs, and Barry Zubrow, chief risk officer of JPMorgan Chase.
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