Stocks on Wall Street tumbled and the dollar tumbled after President Barack Obama yesterday threatened to fight Wall Street banks with new proposals to limit financial risk taking.
Mr Obama laid out rules to restrict some banks' most lucrative operations, which he blamed for helping to cause the financial crisis.
"If these folks want a fight, it's a fight I'm ready to have," Mr Obama told reporters at the White House, flanked by his top economic advisers and officials. "We should no longer allow banks to stray too far from their central mission of serving their customers," he said.
Bank shares slid and the dollar fell against other currencies after his announcement. JPMorgan fell 6.59 per cent, helping push the Dow Jones Industrial average down 2 per cent.
Citigroup fell 5.49 per cent and Bank of America fell 6.19 per cent while Goldman dropped 4.12 per cent despite posting strong earnings yesterday.
French and British politicians today offered support for Mr Obama's plan to curb banks' size and risk-taking
Mr Obama's plan would prevent banks or financial institutions that own banks from investing in, owning or sponsoring a hedge fund or private equity fund.
It would set a new limit on banks' size in relation to the overall financial sector and perhaps most dramatically, the plan could also bar institutions from proprietary trading operations, unrelated to serving customers, for their own profit.
Proprietary trading involves firms making bets on financial markets with their own money rather than executing a trade for a client and has been the source of much of banks' bumper profits before and after the global financial crisis.
French Economy Minister Christine Lagarde welcomed the proposal, saying it was a "very, very good step forward".
"They see that regulation, which was a taboo word that was difficult to use in financial circles in the United States, is vital to contain and limit banking excesses," she said.
Britain's opposition Conservatives - tipped by opinion polls to take power at an election which must be held by June - also expressed support, in stark contrast to their conservative Republican cousins in America.
Conservative finance spokesman George Osborne said there was an emerging international consensus on forcing banks to separate their retail and proprietary divisions.
"President Obama has created a lot of space for the rest of the world to come up with what I think would be a sensible system of international rules," he told BBC Radio.
After a mixed first year as president, Mr Obama took a tough, populist-tinged stance aimed at revving up his political base by exploiting anger over Wall Street excess.
The proposals, which need congressional approval, would prevent banks or financial institutions that own banks from investing in, owning or sponsoring a hedge fund or private equity fund.
They also would set a new limit on banks' size in relation to the overall financial sector that would take into account deposits - which are already capped - as well as liabilities and other non-deposit funding sources.
Financial sources said Treasury Secretary Timothy Geithner had hesitations about the proposals, concerned that good economic policy was being sacrificed for politics. But a White House official said the plan had the unanimous backing of Mr Obama's economic team.
Reuters
