Jan. 21 (Bloomberg) -- President Barack Obama called for limiting the size and trading activities of financial institutions as a way to reduce risk-taking and prevent another financial crisis.

The proposals will be part of an overhaul of regulations and would specifically prohibit banks from running proprietary trading operations or investing in hedge funds and private equity funds.

“While the financial system is far stronger today than it was one year ago, it’s still operating under the same rules that led to its near collapse,” Obama said at the White House after meeting with former Federal Reserve Chairman Paul Volcker, who has been an advocate of taking such steps. “Never again will the American taxpayer be held hostage by a bank that is too big to fail.”

The proposals could affect trading at some of the nation’s largest banks, including New York-based Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co., said Frederic Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. Banks conduct proprietary trading for their own benefit, not for that of their clients.

Congressional Approval

The plan is subject to approval by Congress, where the president’s earlier regulatory proposal has hit resistance from some lawmakers and opposition from financial firms.

“If these folks want a fight, it’s a fight I’m ready to have,” Obama said.

The president is renewing his focus on economic issues, tapping into voter anger about the struggling economy, taxpayer bailouts and growing bank profits at a time of 10 percent unemployment, as well as a federal deficit that rose to $1.4 trillion last year. Those economic concerns will figure in the campaigns for November elections that will determine whether Obama’s Democratic Party can sustain majorities in the House and Senate.

Obama said he wants to “strengthen capability and liquidity requirements to make the system more stable.”

Obama in June proposed an overhaul of U.S. financial regulations to fix lapses in oversight and excessive risk-taking that helped push the economy into a prolonged recession.

Last week the president announced a plan to impose a fee on as many as 50 financial companies to recover losses from the federal government’s Troubled Asset Relief Program. It would be imposed starting June 30 on companies such as New York-based Citigroup Inc. and American International Group Inc. and Bank of America Corp. based in Charlotte, North Carolina.

source HERE

Posted by Mr Thx Friday, January 22, 2010


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