Obama unveils plan to limit bank size, sending US stocks sliding
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President Obama has announced new measures to limit the size of banks and financial firms. Wall Street reacted strongly to the news, with the benchmark Dow Jones index losing almost 2 percent.
AFP - President Barack Obama on Thursday announced a plan to limit the size and scope of US banks and finance firms in a populist bid to roll back corporate excess and limit dangerous risk-taking.
"Never again will the American taxpayer be held hostage by a bank that is too big to fail," Obama said, at the White House, alongside former Federal Reserve chief Paul Volcker, who advised him and helped frame the new rules.
The president blamed banks and financial crisis for sparking the worst economic crisis since the Great Depression with "huge reckless risks in pursuit of quick profits and massive bonuses" in a "binge of irresponsibility."
Obama vowed to enact the reforms in Congress, even if Wall Street deployed an army of lobbyists to kill them.
"If these folks want a fight, it's a fight I'm ready to have," he vowed defiantly.
The announcement was the latest attempt by the White House to harness popular fury at massive Wall Street bonuses and tight credit markets, which is adding up to an angry political mood in a crucial election year.
The plan will effectively force finance firms to chose between proprietary activities, trading in stocks and sometimes risky financial instruments and commercial activities, like making loans and collecting deposits.
The initiative, which must be passed by Congress, would prevent banks or finance institutions owning, investing in or sponsoring hedge fund or private equity funds.
Obama also unveiled a new proposal to limit the consolidation of the finance sector.
"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," Obama said.
"My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform," Obama said.
"It is exactly this kind of irresponsibility that makes clear reform is necessary."
Obama vowed to close loopholes that let finance firms trade risky products like credit default swaps without oversight, to identify system-wide risks that could pass a meltdown and strengthen capital and liquidity markets.
Facing widespread voter anger over state take-overs of the troubled firms, Obama earlier this month proposed a tax on big banks and warned the banking industry not to block or water down his planned regulatory reforms.