Asia-Pacific

Obama threatens fight with banks on new risk rules

(Agencies)
Updated: 2010-01-22 13:25

Populist move hits shares

Big financial institutions criticized Obama's move.

"Trading, proprietary or otherwise, did not lead to the financial crisis," said Rob Nichols, president of the Financial Services Forum, a lobbying group for CEOs of firms such as Goldman Sachs and JPMorgan Chase.

He said the government should be focused on better risk management, corporate governance and other forms of regulatory oversight, "rather than arbitrarily banning certain activities, or setting arbitrary size limits."

Obama's move is the latest in a series to crack down on banks and follows a devastating political loss for his party in Massachusetts on Tuesday, when a Republican captured a US Senate seat formerly held by the late Democratic Senator Edward Kennedy, potentially imperiling his domestic agenda.

Bank shares slid and the dollar fell against other currencies after Obama's announcement.

JPMorgan fell 6.59 percent, helping push the Dow Jones Industrial average down 2 percent.

Citigroup Inc fell 5.49 percent and Bank of America Corp fell 6.19 percent while Goldman dropped 4.12 percent despite posting strong earnings on Thursday.

Ralph Fogel, investment strategist at Fogel Neale Partners in New York, said the move would have a major impact on big-name brokerage firms like Goldman Sachs and JPMorgan.

"If they stop prop trading, it will not only dry up liquidity in the market, but it will change the whole structure of Wall Street, of the whole trading community," he said.

Underscoring the high level of public anger at banks, a majority of 1,006 Americans surveyed in a Thomson Reuters/Ipsos poll said executive pay was too high.

White House economic adviser Austan Goolsbee said the proposals were not designed to be punitive. He said they aimed to end the concept that some banks were "too big to fail" and to show that when such firms "mess up, they die."

Before his announcement, Obama met with Paul Volcker, the former Federal Reserve chairman who heads his economic recovery advisory board and who favors putting curbs on big financial firms to limit their ability to do harm.

The House of Representatives approved a sweeping financial regulation reform bill on December 11 that included a provision that would empower regulators to restrict proprietary trading. The Senate has not yet acted on the matter.