Obama hammers Wall Street banks: "most far-reaching overhaul of Wall Street since the 1930"

[MikeWB]

Obama hammers Wall Street banks
By Tom Braithwaite in Washington and Francesco Guerrera in New York
Published: January 21 2010 16:42 | Last updated: January 22 2010 00:11
The global banking industry was thrown into turmoil on Thursday after President Barack Obama , responding to public rage over the financial crisis, proposed the most far-reaching overhaul of Wall Street since the 1930s.

In reforms that could force the restructuring of some of the biggest names in US finance, including JPMorgan Chase and Goldman Sachs, Mr Obama promised that "never again will the American taxpayer be held hostage by a bank that is too big to fail".


Flanked by Paul Volcker, the former Federal Reserve chairman, who has advocated the move for months, Mr Obama called for banks to be banned from running their own trading desks and "owning, investing in or sponsoring" hedge funds and private equity groups.

Tim Geithner, the Treasury secretary, who has come under attack from Democrats on Capitol Hill, backed the plan, officials said, even though his own regulatory proposals have stopped well short of the sweeping Volcker reforms.



Republicans responded coolly, but did not reject the proposals out of hand. Richard Shelby, senior Republican on the Senate banking committee, called for more details and new hearings.

Others accused the White House of adopting a populist message to divert attention away from the blow delivered by the Democrats' defeat in the Senate race in Massachusetts.

The measures, which require congressional approval, hark back to the response to the 1929 stock market crash that ushered in the Glass-Steagall Act, separating commercial and investment banking, which remained in law until 1999.

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Shares of the big Wall Street banks fell as Mr Obama announced the proposals, but those of regional banks rose.

Mr Obama called for new rules – beyond current regulations restricting banks from holding no more than 10 per cent of US deposits – that would place unspecified size limits on institutions.

"In recent years, too many financial firms have put taxpayer money at risk by operating hedge funds and private equity funds and making riskier investments to reap a quick reward," said Mr Obama. "And these firms have taken these risks while benefiting from special financial privileges that are reserved only for banks."

Congressional aides and administration officials said a lot of detail remained to be decided. Barney Frank, chairman of the House financial services committee, said he would support new rules if they allowed banks to dispose of newly banned operations over three to five years and thereby prevent a "fire sale".

Bankers said the lack of detail and the likelihood of a protracted debate in Congress would give them the chance both to lobby for changes and to adapt their businesses, with, for example, Goldman possibly giving up the financial holding company status it adopted in the financial crisis.