US PRESIDENT Barack Obama yesterday called for the biggest regulatory crackdown on banks since the 1930s, proposing strict limits on the size of financial institutions and a ban on risky activities such as proprietary trading and internal hedge funds.

Mr Obama vowed that “never again will the American taxpayer be held hostage by a bank that is too big to fail”.

The far-reaching measures are on par with the response to the 1929 stock market crash which prompted the then US government to separate investment and commercial banking, a split that lasted until 1999.

If enacted by Congress, Mr Obama’s proposals could force Wall Street names like JP Morgan Chase and Goldman Sachs to spin off their huge hedge fund and private equity operations and stop making trading bets with their own money.

Separately Goldman Sachs, which had been on track to pay employees a near-record amount in bonuses, instead set aside nothing for compensation in the fourth quarter and gave $500 million to charity.

The move helped the Wall Street bank report better than expected fourth-quarter net income of $4.95 billion.

Under Mr Obama’s plan, banks would be banned from proprietary trading, and “owning, investing in or sponsoring” hedge funds and private equity groups.

New, unspecified, limits on liabilities would go beyond an existing rule restricting banks to holding no more than 10 per cent of US deposits, to prevent an investment banking-focused institution from growing so large to pose a systemic risk.

“In recent years, too many financial firms have put taxpayer money at risk by operating hedge funds and private equity funds and making riskier investments to reap a quick reward,” said Mr Obama. “And these firms have taken these risks while benefiting from special financial privileges that are reserved only for banks.”

He underlined his determination to see the changes enacted, saying “it is a fight I am willing to have”. – (Copyright The Financial Times Limited 2010)