the nation’s largest financial institutions, limiting their future
growth and the risks they can take with depositors’ money.
“While the financial system is far stronger today
than it was a year one year ago, it is still operating under the exact
same rules that led to its near-collapse,” Obama said in remarks
released before his appearance at the
“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; and
when I see record profits at some of the very firms claiming that they
cannot lend more to small business, cannot keep credit card rates low,
and cannot refund taxpayers for the bailout. It is exactly this kind of
irresponsibility that makes clear reform is necessary.”
Obama essentially is proposing return to the
Glass-Steagall restrictions enacted after the Great Depression, which
separated commercial banks and investment banks.
repealed those restrictions in 1999, opening an era in which bank
holding companies could own not only institutions that accepted
customer deposits but also
“This prohibition says you can choose to engage in
proprietary trading or you can choose to own a bank, but you can’t do
both,” said a senior administration official, speaking on condition of
anonymity before the
Some leading economists, led by former Federal Reserve Chairman
one of Obama’s advisers, have been calling for months for a
reinstatement of those restrictions. Obama did not include the
restrictions in the comprehensive financial regulatory overhaul he
proposed last summer. But the administration has been taking a tougher
stance on banks this year. The new proposals were designed with input
from Volcker, who joined Obama at the
The proposal also would prevent commercial banks
from owning, investing in or advising hedge funds or private equity
funds. The move, which would require congressional action, would affect
large financial institutions such as Goldman Sachs,
which received government bailouts during the financial crisis. The
proposals build on a component of the major overhaul of financial
regulations passed by the House late last year that would give
regulators the ability to break up large financial firms whose collapse
would pose a risk to the economy even if they are not on the brink of
failure.
Obama’s plan also would seek to limit the future
growth of large institutions, adding to an existing prohibition on any
firm holding more than 10 percent of the insured bank deposits in the
nation. The administration wants regulators to impose a new cap on
funds other than deposits and a firm’s liabilities. The specifics of
such a cap would have to be worked out by regulators, but
administration officials said they were not designed to reduce the
market share of any existing firm, but rather “to constrain future
growth that leads to excessive concentration.”
—
(c)2010, Tribune Co.
Distributed by McClatchy-Tribune Information Services.
