WASHINGTON, (Reuters) – U.S. President Barack Obama threatened to fight Wall Street banks yesterday with a new proposal to limit financial risk taking, sending stocks and the dollar tumbling.
Obama, a Democrat who is struggling to advance his agenda after a key election loss this week, laid out rules to restrict some banks’ most lucrative operations, which he blamed for helping to cause the financial crisis.
“If these folks want a fight, it’s a fight I’m ready to have,” Obama told reporters at the White House, flanked by his top economic advisers and lawmakers.
“We should no longer allow banks to stray too far from their central mission of serving their customers,” he said.
Financial sources said Treasury Secretary Timothy Geithner had hesitations about the proposals, concerned that good economic policy was being sacrificed for politics.
But a White House official said the plan had the unanimous backing of Obama’s economic team.
“We should no longer allow banks to stray too far from their central mission of serving their customers,” Obama said.
After a mixed first year as president, Obama took a tough, populist-tinged stance aimed at revving up his political base by exploiting anger over Wall Street excess.
The proposals, which require congressional approval, would prevent banks or financial institutions that own banks from investing in, owning or sponsoring a hedge fund or private equity fund.
They would also set a new limit on banks’ size in relation to the overall financial sector that would take into account deposits — which are already capped — as well as liabilities and other non-deposit funding sources.
The proposed rules also would bar institutions from proprietary trading operations, unrelated to serving customers, for their own profit.
Proprietary trading involves firms making bets on financial markets with their own money rather than executing a trade for a client. These expert trading operations, which can bet on stocks and other financial instruments to rise or fall, have been enormously profitable for the banks but can hold huge risks for the financial system if the bets go wrong.
