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Monday
Jan252010

Obama gets tough with the banks

Bank shares fell sharply today across the globe, taking national indexes with them as Barak Obama declared war on Wall Street and a banking system he feels is in urgent need of modernisation. In London Barclays shares dropped 6.2% and the Royal Bank of Scotland fell by 6% whilst across Europe, Societe Generale also fell with Deutsche Bank dropping 4.9%.

The series of sweeping of measures, which could mean breaking up the biggest US banks, is designed to reign in excessively risky behaviour. Many observers regard the reforms are the most far-reaching measures to be put in place since the 1930's.

Fighting Talk

'Never again will the American taxpayer be held hostage by banks that are too big to fail,' the President announced, continuing, 'we should no longer allow banks to stray too far from their central mission of serving their customers. 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.'

UK reaction

Political reaction to Obama's stance has been enthusiastic. Both George Osbourne the Shadow Chancellor and Vince Cable the Liberal Democrat Shadow Chancellor have come out in strong support. 'The days of excessive risk-taking on the back of taxpayers’ money must stop now,' says Cable. Osbourne indicated that if elected a Conservative Government would be quick an identical dismantling of UK banks.

The French are also supportive. French Finance Minister Christine Lagarde telling the BBC, 'I think this is a very, very good step forward.'

Back in Britain the UK Treasury said it would 'very carefully' consider the US bank reform plans which would see the separation of retail banking from activities like large-scale proprietary trading (retail banks using their own money in investments) as well as the introduction of bank levies.

The US proposals were 'very much in accordance with the direction we have been setting,' said City Minister Lord Myners drawing attention to the Financial Services Bill making its way through Parliament and that give the Financial Services Authority more powers to regulate banking behaviour.

Serious Stuff

Of course how the reforms will play out and whether or not they will improve matters remains to be seen. What isn't in doubt though is that Obama is deadly serious about the whole thing. His commitment to change is clear. 'If these folks want a fight, it's a fight I'm ready to have,' he vowed.

 



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