Posted By thestatedtruth.com on January 21, 2010

Jan. 21 (Bloomberg) — President Barack Obama, tapping into voter anger over bank bailouts, 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, to be added to an overhaul of regulations being considered by Congress, would prohibit banks from running proprietary trading operations solely for their own profit and sponsoring hedge funds and private equity funds. He also proposes expanding a 10 percent market-share cap on deposits to include other liabilities such as non-deposit funding to restrict growth and consolidation.

“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., In derivatives markets trading, the perceived credit risk of the largest U.S. banks rose. Credit-default swaps on bonds issued by Goldman Sachs cost buyers 18 basis points more, reaching a mid-price of 120 basis points, the biggest increase in five months, according to broker Phoenix Partners Group.

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.

House Financial Services Committee Chairman Barney Frank said that while he generally supports the administration’s plan, financial institutions should get at least five years to comply.

“It would be a mistake to mandate divestiture of all the hedge funds of all the private equity entities that might be covered within a short period of time,” the Massachusetts Democrat said on Bloomberg Television. “You create fire-sale conditions.”

Senator Christopher Dodd, the Connecticut Democrat who heads the Banking Committee, gave a measured response, saying he’ll give “careful consideration” to Obama’s proposal.

More at …..http://www.bloomberg.com/apps/news?pid=20601087&sid=aGwoMdcKbVFk

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