Battling criticism from Republican ­lawmakers, Volcker told the Senate's banking committee it was entirely ­possible to define banks' "proprietary trading", quipping that risky financial activity was "like pornography: you know it when you see it".

Volcker told the committee: "Every banker I speak with knows very well what proprietary trading means and implies.

"My understanding is that only a handful of large commercial banks – maybe four or five in the US and perhaps a couple of dozen worldwide – are now engaged in this activity in volume."

Under plans set out earlier this month by Obama, the US government wants to stop any bank with a licence to take ­customers' deposits from operating hedge funds, private equity funds or from ­speculative trading with their own funds, rather than clients' funds.

"What I want to get out of the system is taxpayer support for speculative activity," said Volcker. "If you don't bar that, it's going to become bigger and bigger."

The proposal to limit banks' activities has been dubbed the 'Volcker rule' by Obama, named after the 82-year-old former Federal Reserve chairman who made his name as an inflation fighter in the 1980s.