Business News

Obama calls for limits on banks' size and risk-taking (Roundup)

Jan 21, 2010, 17:24 GMT

US President Barack Obama on Thursday proposed giving banking regulators more power to limit the size of banks and restrict the scope of risk-taking in the hopes of preventing another financial crisis down the road. © Janet Mayer / PR Photos

Washington - US President Barack Obama on Thursday proposed giving banking regulators more power to limit the size of banks and restrict the scope of risk-taking in the hopes of preventing another financial crisis down the road.

The chief aim is to prevent any one bank from becoming too critical for the health of the wider financial system, by imposing limits on their liabilities, and to prohibit commercial banks from engaging in proprietary trading, or trading on their own accounts.

'Never again will the American taxpayer be held hostage by a bank that is too big to fail,' Obama said in an announcement at the White House.

The new measures were proposed in addition to a much broader financial regulatory reform package that is already making its way through Congress, creating a new consumer protection agency and giving the Federal Reserve new powers to regulate financial firms.

Obama's latest proposals lend backing to the approach of former Federal Reserve chairman Paul A Volcker, now an adviser who stood by Obama's side during the White House announcement.

Volcker has advocated an end to proprietary trading of banks' financial securities, among them mortgage-backed paper, by commercial banks. The 2008 global financial crisis was triggered by huge losses in such trading.

The president is increasingly focusing his attention on the issue of tighter regulations for the banking sector, which the administration helped to prop up with a massive emergency bail-out in the wake of the 2008 financial meltdown.

Last week Obama proposed a 'responsibility fee' on America's largest banks to help try to recover losses of up to 117 billion dollars from the federal bail-out.

Obama has slammed the 'irresponsibility' of top banks that have returned to 'business-as-usual' just a year after the financial crisis struck the global economy. Public anger around the world has been fuelled by firms handing out billions in bonuses to executives.

Goldman Sachs earlier Thursday reported a profit of 13.4 billion dollars for 2009 and said it had paid a total of 16.2 billion dollars in bonuses over the year.

'My resolve is only strengthened when I see a return to old practices at some of the very firms fighting reform, and when I see soaring profits and obscene bonuses at some of the very firms claiming that they can't lend more to small businesses,' Obama said.