Obama goes to war with the banks
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President Barack Obama promised to take the fight to the bankers as he announced sweeping reforms of the banking sector.
Just a week after revealing his bank tax, Obama yesterday announced “the Volcker rule” which he hopes will put an end to banks ever being ‘too big to fail’.
The rule will limit the scope of banks, and will make sure that no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit.
The rule will also limit the size of banks - the rule will place broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits.
Obama said: “we’ve seen in recent weeks an army of industry lobbyists from Wall Street descending on Capitol Hill to try and block basic and common-sense rules of the road that would protect our economy and the American people.
“So if these folks want a fight, it’s a fight I’m ready to have. My resolve is only strengthened when I see a return to old practices - when I see soaring profits and obscene bonuses at some of the very firms claiming that they can’t lend more to small business and they can’t keep credit card rates low. It’s exactly this kind of irresponsibility that makes clear reform is necessary.”
Creditsights says the new rule could have most adverse impact on Goldman Sachs as it is more private equity and hedge fund trading oriented than the other major big bank peers. It says: “It seems that the Obama proposal does not want the banking system insured activities to act as a buffer.”
The Conservative party was quick to back Obama’s sweeping changes. The Financial Times reports that Shadow Chancellor George Osborne said the reforms are: “definitely something we think needs to be done”.
Liberal Democrat Shadow Chancellor, Vince Cable says: “Barack Obama understands that the bonus culture in the banking system has got entirely out of hand and must be curbed.
“While Obama’s proposals to prevent the worst elements of proprietary trading are welcome, this is merely a half-way house. We must break up British banks to ensure that taxpayers are not forced to underwrite unnecessary risks and to make the system more competitive. What is clear is that we would not be acting alone - we are already lagging behind the US.”
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