Obama tackles banks

Barack Obama declared war on Wall Street as he unveiled a sweeping series of measures aimed at checking the behaviour of banks and clamping down on risky deals.

The proposals, regarded as the biggest regulatory crackdown on banks since the 1930s, would limit the size of institutions and bar them from the most cavalier trading practices. Obama hopes that the move will reset his flagging presidency.

"We should no longer allow banks to stray too far from their central mission of serving their customers," he said this week.

"My resolve to reform the system is only strengthened 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. If these folks want a fight, it's a fight I'm ready to have. Never again will the American taxpayer be held hostage by a bank that is too big to fail."

Flanked by his economic advisers, he said that Wall Street banks must:

• halt "proprietary trading", where banks risk huge sums predicting the outcome of future moves in the price of commodities such as oil;
• operate more cautiously and have more available funds;
• not become too large by limiting the amount of ordinary banking business they can undertake.

In Britain, the Conservatives and Liberal Democrats pounced on the president's words, claiming that they had been calling for similar measures for some time. The Treasury said that it would study his moves carefully.

Obama's comments prompted heavy falls in stock markets on both sides of the Atlantic on Thursday. London's FTSE100 fell 85.70 points to 5335.1 - a fall of 1.6% - while on Wall Street share prices fell by more than 2% at one stage.

Among those with the biggest share price falls on Wall Street were the banks seen as being most wounded by Obama's proposals.

Shares of JPMorgan Chase and Bank of America each fell by more than 6%, while Citigroup shares fell by more than 5% and Goldman Sachs shares by more than 3%.

Analysts said that the proposals, if enacted unilaterally by the US, could damage Wall Street's standing as a global financial centre.

Tim Roberts, fund manager at Cavendish Asset Management, said: "Attacking the heart and soul of Wall Street is not the answer, and will not necessarily prevent other crises in the future. Hindsight is no substitute for foresight. Nor is punitive, retrospective judgment a criteria for assessing future dangers to the system.

"The consumer may have tired of paying for Wall Street's excess and been angered by the remorseless return to health that followed. Yet smothering Wall Street will only hamper economic recovery, meaning that access to capital becomes harder for private businesses and consumers, while institutional and private investors battle with an anaesthetised market already highly fragile."