Obama Pushes New Bank Regulations

[Savonarola]

Obama pushes new bank regulation 

US President Barack Obama: "I am proposing simple, common sense reforms"
US President Barack Obama has proposed limits to the size of banks to try to prevent future financial crises.

"Never again will the American taxpayer be held hostage by banks that are too big to fail," Mr Obama said.

He recently announced a $117bn (£72bn) levy on banks to recoup money US taxpayers spent bailing out the banks.

US stocks - especially banks such as JPMorgan Chase and Bank of America - fell sharply as Mr Obama announced the sweeping new rules.

His proposals also include limits on the amount of risk banks can take, and banning retail banks from using their own money in risky financial transactions.

That prevents commercial banks from investing in hedge funds, private equity funds or engaging in so-called proprietary trading.

If these folks want a fight, it's a fight I'm ready to have

Barack Obama

The benchmark US Dow Jones industrial average dropped 1.7%. The US dollar also turned lower against the euro and UK pound.

"While the financial system is far stronger today than it was one year ago, it is still operating under the exact same rules that led to its near collapse," Mr Obama said.

The move is Mr Obama's first proposal since Republican Scott Brown's shock victory in Massachusetts to win a Senate seat.

Tough new rules

Mr Obama has proposed a raft of new regulation but it has been held up in political wrangling in both the Senate and House of Representatives.

Mr Brown's victory may make it harder to pass the rules Mr Obama has proposed.

Banks have also been lobbying against more stringent regulation.

"If these folks want a fight, it's a fight I'm ready to have," he vowed.

The president dubbed his proposals on limiting bank risk the Volcker rule - after Paul Volcker, one of his economic advisors and a former chairman of the Federal Reserve central bank.

The moves follow popular anger at financial institutions, who have been paying large bonuses to staff even as they accepted government bail-outs to keep them going.

The tax will claw back some of the losses from a $700bn taxpayer bail-out of US banks known as the Troubled Asset Relief Program (Tarp).

It was drawn up in the midst of the financial crisis in 2008, following the collapse of US investment bank Lehman Brothers and rescue of insurance giant American International Group (AIG).

Mr Obama' s proposals appear to be a return to the principles underlying the Glass-Steagall Act.

That law - from the 1930s in the aftermath of the Great Depression - separated commercial and investment banking and was eventually abolished in 1999 under President Bill Clinton.

Mr Clinton's financial secretary at the time, Robert Rubin, previously worked at Goldman Sachs and went on to be an advisor to Citigroup until last year.

He should refer to himself in the third person with a definite article when he makes pronouncements like that.  " If these folks want a fight, it's a fight the Barack is ready to have" sounds more menacing.

Bluster aside, I wonder if there could be any significant reform for banks passed through this Congress.  There's a lot of voter anger on the issue, but there's a lot of bank lobbyists with money as well.   

[Admiral Yi]

I was wondering why the market was tanking today.

I'm still befuddled by that tax to pay for the loans that were paid back.  Is JP Morgan supposed to pay for the money the Treasury will lose on AIG and GM?

[Neil]

I was wondering why the market was tanking today.

I'm still befuddled by that tax to pay for the loans that were paid back.  Is JP Morgan supposed to pay for the money the Treasury will lose on AIG and GM?

It's not like AIG or GM will be paying it back.

[DGuller]

Meh, all the big boys should pay.  Given the interconnectedness of the financial system, none of them would stick around if TARP wasn't enacted, even the banks like JPMorgan that appear to have been the least reckless of the lot.

[Admiral Yi]

Meh, all the big boys should pay.  Given the interconnectedness of the financial system, none of them would stick around if TARP wasn't enacted, even the banks like JPMorgan that appear to have been the least reckless of the lot.

Or even the foreign banks that are off the hook for this tax.

Your logic would make perfect sense if the damage wrought by a collapse of the financial system would have extended no further than the walls of the banks.  But of course it wouldn't have.

The tax is pure politics.

[The Minsky Moment]

Your logic would make perfect sense if the damage wrought by a collapse of the financial system would have extended no further than the walls of the banks.  But of course it wouldn't have.

I am confused.  There is no question the the actions of the Treasury and Fed were of enormous benefit to banks individually and as an industry.  The fact that there was a more general benefit to avoiding a general financial collapse does not change that fact, it only reinforces the point about what would have happened in the absence of government action.

[derspiess]

If only these banks were nationalized-- then they'd no longer be his enemy.

[Legbiter]

His proposals also include limits on the amount of risk banks can take, and banning retail banks from using their own money in risky financial transactions.

That prevents commercial banks from investing in hedge funds, private equity funds or engaging in so-called proprietary trading

Obama's Glass-Steagall? Good.

[Fate]

I am confused.  There is no question the the actions of the Treasury and Fed were of enormous benefit to banks individually and as an industry.  The fact that there was a more general benefit to avoiding a general financial collapse does not change that fact, it only reinforces the point about what would have happened in the absence of government action.

It's pretty clear that we would have recovered sooner without government meddling in the financial industry. The TARP was just an excuse for a federal power grab at the expense of the private sector.

[Sheilbh]

The tax is pure politics.

Maybe.  But there was a British banker on the news talking about this when it was announced over the weekend or last week and he thought it was a pretty decent idea.

[Strix]

Maybe.  But there was a British banker on the news talking about this when it was announced over the weekend or last week and he thought it was a pretty decent idea.

Brits and their love of taxes.

[derspiess]

Maybe.  But there was a British banker on the news talking about this when it was announced over the weekend or last week and he thought it was a pretty decent idea.

I'm sure he did.  But how is that relevant?

[MadImmortalMan]

We don't need more regulation, we just need to break up the huge ones into merely big ones.

[Sheilbh]

I'm sure he did.  But how is that relevant?

You could have it worse

One of his point was that there does need to be some degree of payback by the banks and he thought that this plan - which in effect says 'I don't care where the money comes from, just pay back' - is far better than taxing bonuses or what he called 'individual punishment'.  In the UK we're probably going to have an extra tax on super-high bonuses which is more individual punishment.

[Sheilbh]

We don't need more regulation, we just need to break up the huge ones into merely big ones.

That would be useful but far more unlikely.  Plus this regulation is, according to that article, merely a return to what you had a decade ago.