Obama Raises Stakes in Fight With Wall Street
- President Barack Obama upped the ante Thursday in a fight to overhaul regulation of banks and other financial firms, proposing new limits on their size and their ability to invest depositors' funds for their own profits.
Shares of the big financial firms fell after Obama made the announcement amid a broader decline in stock markets. Citigroup, Bank of America and JPMorgan Chase, among others, saw their stocks drop by more than 5 percent.
The announcement comes as the president and allies in Congress seem to be having a tougher time getting traction on financial regulation bills the House and Senate have been working on for months, even as Wall Street and banking executives have become a rhetorical punching bag in Washington. And the White House may be calculating that whatever the prospects of tighter regulation may be, it has nothing to lose in taking on the banks.
"If these folks want a fight, it's a fight I'm ready to have," Obama said after describing the "army of industry lobbyists from Wall Street" descending on Washington to oppose stricter rules. "My resolve is only strengthened when I see a return to old practices in some of the very firms fighting reform; when I see soaring profits and obscene bonuses at some of the very firms claiming that they can't lend more to small businesses."
Steve Bartlett, head of the Financial Services Roundtable, an industry lobbying group, said the Obama administration's latest plan is "inconsistent" with its stated goals of strengthening the financial system and avoiding another crisis.
"The proposal will restrict lending, increase risk, decrease stability in the system and limit our ability to help create jobs," Bartlett said.
The latest White House proposals would prohibit banks, or financial institutions that include banks, from investing in or sponsoring hedge funds or private-equity funds "unrelated to serving customers for its own profit." In essence, the move takes aim at proprietary trading, the practice of making financial trades that can sometimes compete or run counter to trades made on behalf of customers.
The proposals would also limit consolidation in the financial sector, seeking to prevent the creation of new financial "supermarkets" and perhaps undo mergers that created behemoths like Citigroup by combining banks, investment banks and stockbrokers. Specifically, the White House wants to restrict the "growth of the market share of liabilities at the largest financial firms," one of the factors that made government intervention necessary once the financial crisis struck.
"Never again will the American taxpayer be held hostage by a bank that is too big to fail," Obama said. "When banks benefit from the safety net that taxpayers provide, which includes lower-cost capital, it is not appropriate for them to turn around and use that cheap money to trade for profit. And that is especially true when this kind of trading often puts banks in direct conflict with their customers' interests."
Standing beside Obama were Democrat Barney Frank, chairman of the House Financial Services Committee, and Christopher Dodd, his counterpart in the Senate. While the House has already passed a bill that would consolidate financial regulators' authority, create new safeguards for non-banks aimed at ensuring that none become "too big to fail," and enact other measures to lower risks in the marketplace, Dodd has struggled to produce a bill.
The White House said that in the coming weeks, the president will work with Dodd to craft a bill that includes the new rule.
But later, Frank, speaking on CNBC, suggested that he opposes doing too much at once, adding that all needed changes to finance regulation could take three to five years to put in place.
Shares of the big financial firms fell after Obama made the announcement amid a broader decline in stock markets. Citigroup, Bank of America and JPMorgan Chase, among others, saw their stocks drop by more than 5 percent.
The announcement comes as the president and allies in Congress seem to be having a tougher time getting traction on financial regulation bills the House and Senate have been working on for months, even as Wall Street and banking executives have become a rhetorical punching bag in Washington. And the White House may be calculating that whatever the prospects of tighter regulation may be, it has nothing to lose in taking on the banks.
"If these folks want a fight, it's a fight I'm ready to have," Obama said after describing the "army of industry lobbyists from Wall Street" descending on Washington to oppose stricter rules. "My resolve is only strengthened when I see a return to old practices in some of the very firms fighting reform; when I see soaring profits and obscene bonuses at some of the very firms claiming that they can't lend more to small businesses."
Steve Bartlett, head of the Financial Services Roundtable, an industry lobbying group, said the Obama administration's latest plan is "inconsistent" with its stated goals of strengthening the financial system and avoiding another crisis.
"The proposal will restrict lending, increase risk, decrease stability in the system and limit our ability to help create jobs," Bartlett said.
The latest White House proposals would prohibit banks, or financial institutions that include banks, from investing in or sponsoring hedge funds or private-equity funds "unrelated to serving customers for its own profit." In essence, the move takes aim at proprietary trading, the practice of making financial trades that can sometimes compete or run counter to trades made on behalf of customers.
The proposals would also limit consolidation in the financial sector, seeking to prevent the creation of new financial "supermarkets" and perhaps undo mergers that created behemoths like Citigroup by combining banks, investment banks and stockbrokers. Specifically, the White House wants to restrict the "growth of the market share of liabilities at the largest financial firms," one of the factors that made government intervention necessary once the financial crisis struck.
"Never again will the American taxpayer be held hostage by a bank that is too big to fail," Obama said. "When banks benefit from the safety net that taxpayers provide, which includes lower-cost capital, it is not appropriate for them to turn around and use that cheap money to trade for profit. And that is especially true when this kind of trading often puts banks in direct conflict with their customers' interests."
Standing beside Obama were Democrat Barney Frank, chairman of the House Financial Services Committee, and Christopher Dodd, his counterpart in the Senate. While the House has already passed a bill that would consolidate financial regulators' authority, create new safeguards for non-banks aimed at ensuring that none become "too big to fail," and enact other measures to lower risks in the marketplace, Dodd has struggled to produce a bill.
The White House said that in the coming weeks, the president will work with Dodd to craft a bill that includes the new rule.
But later, Frank, speaking on CNBC, suggested that he opposes doing too much at once, adding that all needed changes to finance regulation could take three to five years to put in place.
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