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Obama to break up banks

Robert Peston | 17:38 UK time, Thursday, 21 January 2010

Banking reforms do not come bigger than those proposed today by President Obama.

In an echo of the break up of banks that was imposed in the United States after the Great Depression, he wants a limit on their overall size and he also wants them banned from three activities that in recent years have been central to many of them.

He is pushing for them to be prohibited from involvment in hedge funds, from buying and selling whole companies in what's known as private equity and from buying and selling securities for their own benefit on so-called proprietary trading desks.

In simple terms, he wants to prevent banks from taking speculative risks to generate colossal profits, while knowing that if their bets go wrong taxpayers will pick up the bill.

It means that some of the biggest banks in the US - from Bank of America, to JP Morgan and even Goldman Sachs - may have to be broken up.

Of course its possible (perhaps even likely) that pure investment banks, such as Goldman Sachs, will be largely exempt.

But President Obama did not say that the reform would only apply to those banks with a retail presence, such as JP Morgan and Citigroup (although perhaps it is what he meant to say). He said it would apply to "banks" as defined in US law - and Goldman became one of those in the autumn of 2008.

The big banks will hate his proposals - and will doubtless use their formidable lobbying power and financial resources to persuade Congress to water down the reform plans.

But Obama is up for the scrap. "If these folks want a fight, it is a fight I am ready to have".

The US President believes that banks are back to their bad old ways too soon after their woes led to the biggest bank global bail out in history.

Goldman Sachs would deny this, but its near record revenues of $45bn for 2009 and 50% rise in staff pay to $16bn - or $500,000 per head - shows that the banking crisis, for it at least, is a dim and distant memory.

UPDATE: 18:09

George Osborne, the shadow chancellor, has just told me that Obama's plan to break up the banks is consistent with the views he expressed in his recent bank reform paper.

His condition for implementing such a radical plan was that it needed international agreement.

Well, he has got that now. So he has told me - explicitly - that a Tory government would impose an identical dismantling of British banks to those suggested by President Obama.

Which will generate profound fear in the boardrooms of Royal Bank of Scotland and - more especially - Barclays.

Comments

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  • Comment number 1.

    Robert:

    Good news, regarding President Obama's theory in regards to breaking up "big" banks in his speech....

    But, here is the biggest problem; The Big banks will use in the powers to get whomever; to re-energized that entire idea of the breaking up the banks.

    ~Dennis Junior~

  • Comment number 2.

    About time! Best of luck to Mr Obama, and I hope many other leaders follow suit.

  • Comment number 3.

    Well, it all sounds too good to be true, but let's wait and see if it goes through Congress.

  • Comment number 4.

    This sounds like a great plan.

    Let's hope this gets all the way through Congress and the Senate, and then just watch all the other countries fall into line including the UK.

    I must go away and read more of what Paul Volcker has been saying about this crisis.

    He's the man..... thank goodness that a guy who has been so long off the scene has come back to help.

    BTW he has a fan club on Facebook.... https://www.facebook.com/pages/Paul-Volcker/39801774371?ref=search&sid=666394467.2093769045..1

    I'm signing up.....

  • Comment number 5.

    Smash them into little pieces and then let them try and pay themselves obscenely excessive bonuses?

    What's taking so long?

  • Comment number 6.

    Wonder how Obama will get that through Senate? But it sounds like a good plan to me. Are we to presume that this is the splitting of retail banks from investment banks, leaving those that hold our mortgages and savings safe from the lunacy of mortgage backed securities and credit default swaps? If so, then this is absolutely the right thing to do thus allowing those investment houses that take the insane risks to go to the wall when it all turns south. May we soon see the same legislation brought to the UK & Europe.

  • Comment number 7.

    Robert

    I though we had learnt lessons from the Great Depression. Its now becoming clear that we haven't. If the banks are going to be strangled from acting as the engine to get us out of the hole then we will be in it for a long time.

    How long will it be before the banks shift their operations out of the US and Europe to jurisdictions that will allow them the freedom they need.

    Kind regards

  • Comment number 8.

    This is a wonderful gift to Gordon Brown. It will allow him to continue to pile pointless legislation on the City without coming close to providing a proper solution such as Obama is proposing, and the disgruntled US banks will continue to expand UK operations to escape the US legislation. This is exactly what happened with Sarbannes Oxley. More overpaid parasitic bankers heading our way.

  • Comment number 9.

    Mr Peston seems to relish this scrap. I assume a stockmarket collapse will not affect his portfolio?

  • Comment number 10.

    This is a great move. Though a better one would be to treat banks as public utilities. The banks will whine but I don't care. It's time for them to bend over instead of all of us.

  • Comment number 11.

    I wonder how fox news will twist this. They will, thats for sure, but I think it will require some creative thinking.

    Either forcing banks to take less risks, or punishing people who took those risks was necessary. The sad thing is, executives who took those risks, knowing how things will unravel (things were pretty clear after Bear Stearns' hedge funds went boom), and earned enormous bonuses, won't and can't be punished. And while punishing for doing bad business might be wrong, rewarding for taking impossible risks is even worse.

  • Comment number 12.

    Robert:

    Regarding the update @ 18.09 [Which will generate profound fear in the boardrooms of Barclays and Royal Bank of Scotland.]

    Yes, it should bring massive amount of fear in the board-rooms and the executive suites at Barclays and RBS...If the idea ever comes to live!

    N.B.: I have a banking account with RBS Brand name bank....

    -Dennis Junior-

  • Comment number 13.

    Well its about time. 3 cheers for President Obama. At last someone is doing what needs to be done, we can all only hope that this regulation is not watered down too much by the law makers on Capitol Hill. No-one else in the world can do anything unless America does, thats just the way it is, so now I am waiting with interest to see what is going to be put in place over here. Terrific.

  • Comment number 14.

    Finally Obama begins to address some of the injust and exploitative structures which have existed in investment banking for centuries, making the rich always richer and sooner or later the average tax payer poorer. American Presidents tried to rein in the banks once before in the 1930s, now once more it is high time that banks are strictly regulated and downsized.

    We need immediately a serious structural and regulatory banking reform. Most importantly retail and investment parts of banks have to be separated again (bring back the Glass–Steagall Act of 1932 in the US and similar laws in other countries). For more resources and many more details exposing the very destructive impact of the badly malfunctioning global finance sector please visit:
    https://globalinsights.wordpress.com/

  • Comment number 15.

    It's good to see that somebody is prepared to make brave political decisions following the banking crisis. It's clear that banks have gotten too large, to a point where the risk of failure dictates government policy. Banks should be broken up so that none are 'too big to fail'. I only hope the UK and EU follow suit.

  • Comment number 16.

    Wow..... if these rules were already in place here then that would scupper RBS's nasty little bit of industrial treachery in providing funds to Kraft to buy Cadbury. I love it.

  • Comment number 17.

    President Obama's intentions are interesting and really much more far reaching than I would have expected. I hope they are implemented, but I am not holding my breath. I imagine that we will soon read a BBC item by you or a US correspondent detailing the politics and lobbying that dismember such a serious plan. And the probability that a Conservative government (or even a Labour one) would stand up to City lobbying against such changes here is surely vanishingly small.

  • Comment number 18.

    Obama's steps may be in the right direction, or not. I'm no expert. However, perhaps those with more understanding both of the crisis and Obama's planned laws can explain how the likes of Northern Rock (which if I understand correctly was hit by wholesale lending issues) and AIG (one of the biggest recipients of aid in the USA and not a bank) would be prevented from suffering the same fate?

    But I agree the banks need to pay into an insurance fund - this needs to be made international in some way given the global nature of the finance industry.

    Not quite sure how banks will square up pressure for increased lending with having to pay lots of extra taxes - especially those not yet turning a profit.

    One to watch with interest...

  • Comment number 19.

    This is going to be an apocolypic battle. You can bet the banks, much like the health insurance industry and the oil companies did to protect their intrests, will call upon the all forces of hell to stop this. Its going to get ugly, damn ugly and the same irrational minority that thought healthcare meant death panels will scream "communism".

    In America good politics is not an indicator for success. Rather its who can shout the loudest and make the other appear to be a nazi or a communist who wins. Like with healthcare Obama doesn't have the balls to take on the extreme right. He'll want to accomadate, he cut deals and he will lose the respect of his supporters doing so while the blowhards will see his supporters leaving as a new Boston Tea Party.

    I wish him every bit of success, I think his policies have been based on what is morally the right thing to do. But that doesn't count for anything if people think it will cost them a penny.

  • Comment number 20.

    A well timed distraction by obama, he has been in power for over a year and what has he achieved, hang on I need the back of a stamp to write it down.
    I doubt anyone in banking at the top is quaking in their boots given most are now multi-millionaires waiting for the next gravy boat to come along.
    Only one thing can change the direction we are heading and thats people power, just waiting for everyone to wake up.

  • Comment number 21.

    I would like to see any politician vote against this and see where it leads them. There is no doubt the banks have to be stopped from playing poker with other peoples money, that's why we are in this mess.
    Obama may well be weak on his health reforms and rightly so, but I doubt the Republicans will take this one head on, without losing a lot of blood.

  • Comment number 22.

    UK party politics HAVE come a long way! Who could have even imagined 20 years ago it would take a TORY government to manacle "investment" banks in 2010 - in order to make certain necessary policies prevail? Thanks to the tangential ditching of Labour principles started in 1997 and culminating in Brown's weathercock behaviour recently - a marionette carries more gravitas - it seems the Conservatives have learned enough in the last 12 years and decided to govern next time. If Cameron/Osbourne get the mandate and discharge their responsibilities as a principled Government this country may yet be saved.

  • Comment number 23.

    Good! At least Obama has the resolve to make a real difference. Separating retail banking from investment banking is the obvious solution (which of course will greatly upset the mega-bonus banker brigade).
    The UK route of taxing bonuses is feeble. They'll just continue with the bonuses and pay the tax. Achieves nothing of substance - just a paltry few hundred £M to the Revenue; a minor side-show.

  • Comment number 24.

    Get the idea that this is a popular move (you can see the bankers in the blog!)- It's a shame we were all so greedy 15 years ago- Bring back the 'high street' Building society and the traditional Bank Manager, before it's too late....

  • Comment number 25.

    I'll believe this when I see it. Obama's political capital is dropping like lead: Blue Dog Democrats will be running for cover as we get closer to November. Unless he can get on the front foot with this issue quickly, aggressively and meaningfully, then he's going to have another Health Care situation: a compromise that no one wants costing a strength sapping process.

    I'm still an admirer, a big admirer, but you can fight too many fights at once, and the political momentum is no longer with him: FACT.

  • Comment number 26.

    Breaking up banks?

    The problem with Obama's scheme is that he will need exchange control to prevent the breaking up from being undone overseas. I don't see any other way to prevent the present cartel remaining in control and effectively circumventing any break-up.

    I am left wondering if Obama's plan is a real plan at all but just a shot across the bows kind of a plan.

    The banks and insurance companies have effectively neutered his plan for healthcare for the uninsured 50 million of America's poorest citizens and I fear that unless truly draconian steps are enshrined in law the banks will just work round them. I already suspect that the banks already have sufficient US Senators in the pockets to prevent any plan becoming law.

    The USA already has Sherman Act of 1890 (its original anti-trust law) that broke up Standard Oil's monopoly, see Standard Oil Co. of New Jersey v. United States, (1911) I think it needs to use this to break up the big banks - with no need to pass anything new through congress.

    (also see my previous '50 banks not 4' for the UK scheme.)

  • Comment number 27.

    Dont get too exited too soon. The first hurdle the bankers lobby will throw at Obama is the Fraud Enforcement and Recovery Act May 2009 which established a bipartisan Financial Crisis Inquiry Commission to advise the President,Congress and the American people on the whole god-damn shooting match. They report by 15 December 2010. To quote the Chair

    " It is my hope that the findings of this commission can help the President, Congress, market
    participants, and the public reach the best judgments about how to fix our financial system. How
    we conduct our work will say much about the credibility with which our work is viewed."

    Legal vultures will see an immediate delaying tactic. Only when the FCIC establish the facts should fundamental reform be even considered, they will say.

  • Comment number 28.

    The biggest reason that this is good is because it means other countries can do so as well. And, if more countries adopt this then the argument of economic competetiveness cannot be used by banks within individual countries.

    This is a great example of leadership to tackle a problem eventhough it does not directly benefit that country.

    Bravo, America

  • Comment number 29.


    Well it’s a bold move I’ll give it that and no doubt go down well with the voters so I’ll expect all political parties with a serious chance of forming a government will put something vaguely similar into their manifestos and we’ll probably hear the G20 and the bunch from Basel talking about it now.

    Publically the affected banks will probably moan about it and explain how everything will cost more as a result which they will be right about because they’ll lose economies of scale.

    Privately though I don’t suppose they’ll care too much in the boardrooms because it’ll take 4 or more years to make happen for various reasons such as:

    (1) The complexity of implementing it will be significant. ABN Amro are still being disentangled 2+ years after RBS bought part of it with still no projected date as to when that piece of work will finish. Splitting the bigger banks is multiple parts will be at least as difficult so any legislation will have to provide sufficient time to carry out – many of the banks directors .will have negotiated new contracts by then with lower targets that still allow them to get paid bucket-loads.

    (2) Whoever wins the next election and proposes this will have their political donations from big business decimated which will curtain their ability to effectively fight the election after next. So the banks will more likely get a friendly government (i.e. one they have backed) who will repeal the legislation before it becomes effective.

    (3) The banks corporate lawyers will find some way around the problem by restructuring business units to meet the requirements without having to break themselves up. I’d expect quite a few years of them fighting this stuff in the courts.

    (4) There a load of impacted legislation that would also need amending in order to shut all the loopholes that the banks will inevitably discover.

    So, all in all, it makes good news coverage for President Obama but I’ll remain sceptical until I see exactly what passes into law.

  • Comment number 30.

    At first sight Obama seems to be hitting the nail on the head.
    Translate his measures to the City.
    Some bank work not possible anymore.
    But surely this will mean a lot of City types on the dole?
    I cannot see bonusses being forgone just to keep people employed. I mean we are talking about bankers..

    So will there be a great big pool of out of work bankers?
    What will they do?
    How about bringing back conductors on Routemaster busses?

    Any other suggestions?

  • Comment number 31.

    It is a very good move. A rare case in which populism and real public good converge. If it goes through the Senate and the House it will be a good thing and an indisputable achievement. If the Republicans opposed it he can hammered them merciless. Of course there is a caveat: Does Obama has the spine to do the last?

  • Comment number 32.

    16. At 6:48pm on 21 Jan 2010, Wee-Scamp wrote:
    "Wow..... if these rules were already in place here then that would scupper RBS's nasty little bit of industrial treachery in providing funds to Kraft to buy Cadbury."

    Unfortunately it wouldn't because the Kraft money is a loan not an investment so providing the applicant meets the lending criteria (which they obviously did) then RBS, or any other bank able to make loans, would have leant the money.

    The only reason another bank didn't get the business (and they probably all bid for it) is because their interest rates were higher or the terms of the loan not as good.

    Businesses, like People, rarely turn a good deal down.

  • Comment number 33.

    Good!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
    Believe it when it happens.........................
    and the 3 bears.................
    those Barclays March 300 puts picking up a bit though.......

  • Comment number 34.

    All of those who by combining together, whether politicians or bankers or shareholders and their lackeys to rip off their own people as well as others, should be thinking very carefully where their combined policies are leading. If they deliberately isolate themselves from reality and blind themselves to the consequences of their actions they can expect no pity when retribution day arrives. We are not dupes and we are very angry at what they have done and what they are doing.

  • Comment number 35.

    Another battle of the alamo. Best of luck Obama,you will need it.

  • Comment number 36.

    Although bashing the banks is good knockabout fun, it may have serious consequences.

    This latest attack by Mr Obama on top of the Basel III proposals puts huge pressure on banks and their shareholders. The banks may have no choice but to rein in lending even more, whilst the shareholders may decide that enough is enough and it's time to move their capital elsewhere.

    So, despite the popular appeal of the bank bashing, the result may be a longer and deeper recession.

  • Comment number 37.

    What gets me is the amazing inconsistency in Government thinking. As a small Lloyds TSB shareholder we got bounced by the government and the big insttitutional shareholders into creating a 'big' bank by absorbing HBOS. This has done wonders for LLoyds share price and no dividends are being paid. Now the policy seems to be to break up the 'big' banks (even though Lloyds is small in global or even European terms) before the bounced shareholders see any benefit. What a farce!

  • Comment number 38.

    Doesn't have a chance. It is obvious to most that the banks own the governments. After the greatest theft in history of personal investments and retirement accounts the legislative bodies have been unwilling to propose a single piece of legislation to change the very causes of the economic collapse. That should tell you something. You should remember that most legislative bodies were told in 2001 that the financial house of cards would fall but after hearings the bankers made sure the rules were not changed....lobbyist, they call them but more accurately they would be called legislative pimps. The populus still believe they have representative government but that is an illusion and the opening up of greater corporate funded political commericals will only lead to more desception and lies. Pity to watch a great nation fall to internal corruption based on greed, but that is the model that history favors.

  • Comment number 39.

    This is just the start but it sounds good. However what will it mean for us the customers? We don't know that yet. We don't even know whether it will become a reality! Obama's job has just got a whole lot harder but he's up for the fight and that's good.
    Over here, politically, Osborne comes out quickly in support (without knowing much of the details). He could yet end up with egg on his face yet again - oh and this is the guy who can't even do his own expenses properly? I'm much more interested in listening to Vince Cable - he's been right on most of it all the way through!

  • Comment number 40.

    Those big bad banks of course they should be broken up....but wait.... what about all that lovely corporation tax and income tax and NI that these banks contribute. Think before you jump on the bank bashing bandwagon!

  • Comment number 41.

    Well done to Obama.
    So George Osborne will make it a manifesto commitment?
    I for one will consider it a major factor in deciding which UK political party to vote for in the up-coming election.

  • Comment number 42.

    I am so glad Obama has proposed this - I was beginning to think the banks were more powerful than the governments. Let investers take huge risks if they like but not so that we pay if they lose. We want banks to service our needs in a safe way.

  • Comment number 43.

    Having been deeply disillusioned by the Democratic Party's inability, commitment or will to push through social and moral reforms, that we the majority had elected Obama return to us, I see no reason to expect them to push this legislation through, returning us to "simple. common sense reforms" (Obama's words). Unfortunately our President, whom we all put so much faith in, is able to talk the talk, but unable to walk the walk. How is it that the Republicans in only eight years were able to completely run roughshod over our rights, morals, reputation & values? They managed all this with the slimmest of margins. We gave Obama the biggest majority in modern times, yet he lacks the will or ability to push through the promised reforms. The answer I'm afraid is 'business as usual'. Sincerely, Disheartened Derek.

  • Comment number 44.

    NeilBham
    'This latest attack by Mr Obama on top of the Basel III proposals puts huge pressure on banks and their shareholders. The banks may have no choice but to rein in lending even more, whilst the shareholders may decide that enough is enough and it's time to move their capital elsewhere.'

    I think pressure is perfectly justified. The optimal outcome of banking is that all lending that has a social benefit outweighing its costs goes through. I see no reason why that outcome is less likely from a bank that has a secure capital base and no longer speculates on financial assets.

  • Comment number 45.

    37. JohnEvans
    'As a small Lloyds TSB shareholder we got bounced by the government and the big insttitutional shareholders into creating a 'big' bank by absorbing HBOS. This has done wonders for LLoyds share price and no dividends are being paid. Now the policy seems to be to break up the 'big' banks...'

    Well, it's not UK policy yet... But even if it was you're talking about two different things. The HBOS/Lloyds TSB merger was encouraged to save the costs of bailing out the retail side of HBOS. A split between the retail side and the rest of the merged bank would be in a different direction.

  • Comment number 46.

    Banks are at the top of a disfunctional financial system set up in way so that the very rich get richer and the average tax payer as well as small depositors sooner or later have to pay the bill.
    Banks need to be strictly controlled and regulated and banks need to serve the societies and their own depositors. Banks should not be allowed to be run in a way that makes a a few bank employees obscenely rich whilst they are empoverishing millions of fellow citizens. Many scholars and former top executives have expressed similar views (it was good to see Paul Volcker standing next to Obama in the press conference).
    Please find many more arguments and facts explaining the urgent need to rein in, regulate, control and to make banks obedient servants of their host societies on the following web site:
    https://globalinsights.wordpress.com/

  • Comment number 47.

    I absolutely agree with these proposals Obama is wanting to push through. However, after watching all the BBC documentaries this week looking at Obama's first year and especially the focus upon the Healthcare act, I just cannot see Obama succeeding. The level of anger, dissatisfaction and strength of the pro-republican movement at the moment left me worried if I'm honest.

    To see banners of Obama portrayed as Hitler (at not just by a ignorant few either) shocked me. So many of their arguments seemed so ill-informed that i worry the promise of change and the great hope we all carried only 12 months ago, will get swallowed up and immersed in republican propaganda his message will be lost and the opportunity squandered.

    Good Luck Obama, you're going to need it!

  • Comment number 48.

    If Obama has trouble getting this through the Senate etc, who will look bad before the electorate?

    Possibly a clever move what ever happens.

  • Comment number 49.

    It strikes me that this reform is totally missing the point. Certain investment houses such as Lehman, largely went under because of their reliance on fleeting wholesale funding. If we go back to a situation whereby investment houses and retail banks are separated, that will presumably increase the dependence of investment banks on short-term funds and actually increase the likelihood that they fail in a liquidity crisis. After all, would Lehman have gone under if it had a more secure funding basis?

    At the same time, the retail banks that have gone under, have done so as a result of their treasury holdings and/or the quality of their loan books. Segregating investment and retail banks would not have changed this situation. Indeed, the diversification provided to those banks with significant investment banking operations has meant that they have been able to turn a profit (and replenish capital accordingly) whilst those banks with a greater retail focus are by and large still making losses (and burning capital).

    Anyway, the point is that by splitting investment and retail banks, surely we are compounding alot of the issues that heightened the crisis?

  • Comment number 50.

    That's right lets bash the banks again just because those nasty bankers get paid more than you do.

    Lets not forget that not all of the banks needed rescuing and some have been very prudently managed and even stepped in to help rescue US banks and yet they are the ones most affected by these changes.

    When will the politicians see that by their pandering to the masses, they are harming the long term prosperity of the economy particularly in London.

    People need to wake up and see that this recession was caused by oil scarcity not entirely by foolish bankers (although there were a few). And guess what, oil is no more plentiful now so get ready for round 2.

  • Comment number 51.

    Not surprising. Just a question mark about whether Obama has the will to carry it through?

    His one major policy initiative - Health Reform is likely to be severely curtailed. The reason given being that it would be too costly, now.

    The last thing Obama needed was economic meltdown the year before he was elected. By the time he was sworn in American impoverishment had just about hit rock bottom. Trying to bring about change, healthcare or otherwise was going to be nigh on impossible. He was always going to come up against Republican opposition. The fact that he was not likely to have the budget to implement his plans would have infuriated his own support though. In other words Obama is courting unpopularity from all sides. So who was to blame for the economic meltdown and, as a result, the lack of tax dollars for his policies......the banks.

    Obama probably won't forget this and if he can't force his own (social and political) agenda through, he may as well try and pass populist legislation to shackle the banks, in the hope that they and insurance companies like AIG, can't near bankrupt the country again, (also preventing future Democrats from carrying on where he was unable to lead?)

    I just hope legislation is passed that will criminalise bank executives if they repeat anything like this. Or failing that, that banks have to make the switch from limited liability to unlimited liability, where any future incompetent bankers would face impoverishment if they went gambling with their own money and lost.

  • Comment number 52.

    This sounds like the start of the fight.

    And will it be dirty? Politics will be seen as a clean fight as opposed to what is to come........

  • Comment number 53.

    It sounds good, but I don't dare to hope. Agree with John from H - it will suffer the same fate as health insurance reform, getting dragged through a paid-for Congress and getting neutered in the process.

    These people OWN the government. They own the Legislative Branch, and they own the Judiciary (look at the recent Supreme Court ruling that corporations can contribute as much as they want to politicians b/c it's "free speech"). They may or may not own the President, but it's a moot point anyway - he can do nothing by himself.

    We don't HAVE a representative government anymore, it doesn't MATTER who we vote for - the outcome is the same. The American people are a captive herd - tranquilized and kept alive by our corporate masters for the purposes of being milked and occasionally slaughtered for beef. MOOOOO!

  • Comment number 54.

  • Comment number 55.

    Hoooooooooooooray.... But bizarre, I had nearly given up & only yesterday posted this https://bit.ly/71UNVu on Robert Peston's blog article Cadbury: banks are the real winners https://bit.ly/5aaW9L

    Now hopefully they will not be the real winners after all and sense and sanity will prevail. However, they will fight and Obama is choosing to negotiate with a beast that is not wounded but recovered, overflowing with cash whilst he is at his weakest with mid terms approaching. And mid terms after the debacle in Massachusetts will have a lot of nervous politicians looking for cash to fight for their own survival which the banks will be only too happy to dole out with the caveat that they kill the bill whenever it gets to Capitol Hill. So no blood in The Street yet, sadly.

  • Comment number 56.

    As 41 Everydayperson says...

    This will be a huge part of the decision we all have in May when the next election arrives.

    Lord Myners is already appearing to represent that the measures taken by this government are enough.
    Well, it is nowhere near.

    To all the bankers on this blog who keep on reminding us about the profits that the banks have been making, the argument just doesn't stack up.

    Things will take some while to adjust, but a society where more people make a better wage and therefore pay more taxes is a much more stable one, than our existing one where the whole thing is rigged in favour of a small group of people - the bankers - who earn an entirely disproportionate share of national income and then simply because of the maths end up happening to pay a larger share of taxes.

  • Comment number 57.

    Here's another take on Obama's proposal:
    https://jessescrossroadscafe.blogspot.com/2010/01/obama-proposes-to-restrain-banks-from.html

    Love the visual aid! :)

  • Comment number 58.

    There is no need for regulation. Just let the market do its work. All that is required is for the international community to agree to NEVER again to bail out a bank.

    No bank was too big to fail. That's simply the line those in trouble spun - most successfully - to secure bail out money.

    Many commentator's at the time - rightly in my opinion - made a sound case for closing down HBOS and RBS.

  • Comment number 59.

    robert
    the president has no choice. 25million americans are dependent on food aid, 10% are out of work..........wall street and the wider banking industry should now adopt a balanced business model, that is not totally focused on huge bonuses for the few, while removing disposable income from the many.
    sure profits will fall flat in the short term. isnt it about time we started looking to the long term.

  • Comment number 60.

    It remains to be seen how far these proposals go remember Mr.Obama stood by the wall street wizards preelection and took on board both Geitner and Summers.larry Summers was deputy to robert rubin who presided over the elimination of the Glass Steagall act

  • Comment number 61.

    @ 40. At 8:25pm on 21 Jan 2010, Bitethehand wrote:
    "Those big bad banks of course they should be broken up....but wait.... what about all that lovely corporation tax and income tax and NI that these banks contribute. Think before you jump on the bank bashing bandwagon!"

    Bitethehand, I agree with you that it is really really unfortunate that for political reasons society has gone into "blame the banker" mode. We're quite happy for movie stars, footballers, and models, and business tycoons to earn loads of money, often for dubious contributions to society, but when bankers make money within the rule of the law, they are the target of a great deal of vitriol.

    However, this does not mean that we should not be analysing the financial system in some detail, and make radical changes when required. The system did fail, and the usual "free market" principle of no government interference had to be adandoned, because these insitutions could not be allowed to fail. Now you will say "what about all those tax dollars that they contributed over the years". Fine - but it seems that those "tax dollars" were founded upon the false belief that society was functioning better than it was. The connection between "money supply" and "real" resources (energy, oil, metal, skilled labour, manual labour etc), and "real" demands (healthcare, electronics, food, clothing, housing) is incredibly mysterious, and for the markets to mean anything at all, they have to be directly representative of those resources. The markets were climbing in "value" at in incredible pace when the "real" world (numbers of people, number of plagues, amount of oil, number of wars) was continuing at a pretty predictable way.

    So: I agree, don't blame the bankers for playing by the rules of the game, but change the rules of the game if they aren't working.

    To put it a different way: the economic law "supply and demand" is affected by flawed and irrational human psychology. The laws of science on the other hand are the true limitations on our standard of living. We need to manage more irrationalities of the former to deal as best as we can with the immutable constraints of the latter.

  • Comment number 62.

    Well well the republicans are rubbishing it already I wonder if they can persuade main street that this is a bad idea I would't be suprised some american politicians are so deep into the banks a bit like union sponsored MP's that the public good comes second to their sponsors and their prospects

  • Comment number 63.

    Let the Battle Begin

    We needed a "big" response to the financial crisis and dysfunctional finance system and Obama has provided it.
    No doubt the banks will be fiercely lobbying the president's political opponents; the Republicans will know that public opinion, on this one at least, will be with Obama but they may calculate that it's worth the pay off with the election some time off.

    Well done and good luck Mr O.

  • Comment number 64.

    Wow i just hope he can get the Senate to vote for it , but like #53 said most politicians are bought and paid for , they work for the big businesses etc and do what the masters say , we im afraid are just pond life , small fry , whatever , they like us to think we count . I feel sure Oil companies must put a stick in the wheel of other forms of transport, the same will happen to anything that restricts their place at the trough .

  • Comment number 65.

    More empty promises.

    Breaking up the banks will make no difference at all. The many smaller banks that might result will still be controlled by a small pool of mega-investors who have controlled banking in the US & UK since the late 1880s.

  • Comment number 66.

    Well done Obama - let's make this happen! Listen carefully UK politicians and take similar action. Let me explain why this all makes a lot of sense.

    The banks are operating corruptly in a number of dimensions and the overall impact of this destroys value in the real economy big time. Let me explain:

    1. Banks are acting as 'wealth pumps'. This means they, as insiders, are using 'colour of the market' information from their major client deals to invest ahead of our pension funds. We therefore get ripped off and have to work longer to be able to afford to retire.

    2. The bonuses pump up property prices in London and other major financial cities. This means my kids will not be able to afford to live near me when they enter the housing market - unless they of course become bankers!!!

    3. As, of course, many others point out the bankers are using tax payers as a back stop to making insane bets, wrecking the real economy. The cost of this in the real economy has been staggering and we will be paying for it for years.

    I consider myself lucky as my small business is 'only' 15% down during this recession. I can adapt, tighten my belt and innovate. I operate from a back bedroom with minimal overheads. I shudder to think what I might be going through if I actually employed people.

    Financial services, both retail and investment should only be an enabler of activity in the real world. Anything more than this and they become thieves. They simply steal money from us in the real economy for the enrichment of their powerful employees and shareholders.

  • Comment number 67.

    I wish the president a great deal of luck, however, given the state of healthcare reform this will be a major hurdle. The Democrats with their deer in the headlight demeanor seem incapable of getting anything done while the Republicans energized by their total disrespect and disregard for the president are busy as beavers, no disrespect to beavers.

    At this point I don't even see myself going into another voting booth unless Mr. Obama decides to run again and it would only be to vote for him. I am totally disgusted with this game.

  • Comment number 68.

    40. At 8:25pm on 21 Jan 2010, Bitethehand wrote:
    Those big bad banks of course they should be broken up....but wait.... what about all that lovely corporation tax and income tax and NI that these banks contribute. Think before you jump on the bank bashing bandwagon!

    If the banks are making excessive profits from gambling, then that is at the expense of the productive economy. Lower levels of debt and lending, and lower asset prices would be excellent news for the economy in the long run, and enable more people to be able to afford to buy a house. Interest only mortgages should be banned, because it relies on the banks increasing asset prices by increasing debt.

  • Comment number 69.

    I don't suppose President Obama could come over here and sort out OUR banks?

  • Comment number 70.

    Just use existing Anti Trust legislation on the banks (and while we about it on Microsoft and Intel too - add other US monopolies of your choosing!)

    The Sherman Act of 1890 seems to me to fit the bill - why not use it! All the messing around and obfuscation is the direct result of corrupt influence being purchased by the large organisations to the detriment of the Nation's (and indeed the world's) people.

    I expect nothing to be done and the current post 2008 crash 2009/10 bubble to burst catastrophically by mid 2010, 2011 to mid 2012. Then we will really be for it - a couple of decade's of depression. All because the idiots that run the asylum (see below) refuse to lean from history and condemn us all to suffer from their same absolutely predictable mistakes.

    (PS fire Ben Bernanke and Mervyn King - NOW before it is too late!)

  • Comment number 71.

    I really do hope this succeeds.

    Obama has his State of the Union address next week and could do well to balance this Wall Street oriented initiative with a stimulus benefiting employment at the grass roots level all over the US

    He's got a fair amount of TARP money left.... maybe he should redirect this towards large public infrastructure programmes.

    That combination would do the job with the Congress and Senate....

    (PS Would be interested to know what Roger Bootle thinks about the Volcker plan?..... I suspect he'll think it's a great idea)

  • Comment number 72.

    When comparing what the UK might do and what the USA are proposing, it's worth remembering the relative importance of the City to the UK economy is vastly greater than that of Wall Street. It will be a test of Conservative party credibility if, as they appear to have done, they make a firm commitment to follow the US path if elected.

  • Comment number 73.

    Banks created hedge funds that they could not understand themselves.

    Leave the banks to do transaction processing only like western union and charge for their services. People will then decide themselves where to invest their monies.

    Banks should not decided where investor monies should be invested leave that to the investors.

    Give only one vote to institutional investor not how many proxy shareholders it represent! this will in one stoke bring true democracy to shareholders.

    Jayant Badiani FCCA

  • Comment number 74.

    "acharlton wrote:

    I absolutely agree with these proposals Obama is wanting to push through. However, after watching all the BBC documentaries this week looking at Obama's first year and especially the focus upon the Healthcare act, I just cannot see Obama succeeding. The level of anger, dissatisfaction and strength of the pro-republican movement at the moment left me worried if I'm honest. "
    You are right, the level of craziness is well above the usual, but Obama must get tough in his speeches and hammer those right wing zealots. He must understand that he must fight the fire with fire. We are well past the time of being nice and polite, and he should put the enemy (not the opposition but the enemy)in evidence in front of the American people.

  • Comment number 75.

    Could it be this is the power struggle to end them all and once and for all will show who really has it? Big finance has being running things for too long and now is the time to cleanse the lot.

  • Comment number 76.

    The banking crisis in the UK was caused by our government relaxing the regulatory controls and almost encouraging the banks to engage in riskier activities. Now is all gone pear shaped they then try to blame the banks for their own failure.

    Putting in all this regulation now is a re-affirmation that they messed up in the first place.

    And as this government are trying as hard as possible to deflect all the public anger over the recession on to "greedy bankers" it smacks of political interference rather than measures to prevent future problems.

  • Comment number 77.

    AgetheGod is spot on- an exact analysis. Delay will always work in the banks' favour and delay is inevitable now with banks buoyant and wealthy again. That we paid for them and will now suffer for it is an iconic irony for our times

  • Comment number 78.

    I'm not sure that the prohibition from from buying and selling securities for their own benefit on so-called proprietary trading desks is a sensible move by Obama. It is likely to reduce banks' diversification and hence increase their risk. Also, these were not the problems that led to bank the credit crunch. All in all, this move may lead to further bank failures.

    I do think that because some banks are too big to fail, they should be broken up. But I'd like to know what happens to a bank that hits its size limit! What will banks do when they approach their size limits. I hope someone has thought this through, because I suspect there will be some perverse goings on.

  • Comment number 79.

    Perhaps the banking industry will now face reality. Thankfully I live in Canada where controls have been in place for many years and where we had very few problems with the recent US/UK bankruptcies.
    I remember seeing an interview with Paul Martin who, when Finance minister, brought these controls in. He said the World Bank arrived n his office and demanded he not do it. THey said it would ruin the world's finances. My but they were smart
    Thank you Paul Martin for being a great finance minister even if you didn't do too well as PM

  • Comment number 80.

    49. Anonymous1

    'by splitting investment and retail banks, surely we are compounding alot of the issues that heightened the crisis?'

    The crisis was caused because banks with large (state-insured) retail deposits held mortgage securities with very dubious valuations. If banks with retail deposits are not allowed to trade in risky securities they are less likely to get into such trouble. If banks without retail deposits get into trouble, there is much less of a systemic problem if they fail.

    If you are correct that investment banking is now profitable and retail banking not, this is likely to have a lot to do with the post-crisis conditions under which they are operating. If you are arguing that one can *never* manage without the other...well perhaps we're better off with neither!

  • Comment number 81.

    #65 mark_2002 wrote:

    Breaking up the banks will make no difference at all. The many smaller banks that might result will still be controlled by a small pool of mega-investors who have controlled banking in the US & UK since the late 1880s.

    I wouldn't argue with that actually. But I agree more actually needs to be done than just break up the big banks. I think we also need more mutuals and co-operatives and I would love to see the return of National Girobank (greatly updated, of course).

    The whole 'retail' banking section of the financial industries needs to be re-designed to meet customers' needs and expectations and not the needs and expectations of bankers.

  • Comment number 82.

    What's special about Barclays that it gets a special mention? Not shorting it are we Mr Peston?

  • Comment number 83.

    hmm. AIG is no bank and it got the biggest bailout... If it's not banks going bust it will be something else, and when ANY bubble bursts people lose money, jobs, etc.

    I wonder what the impact of this change would be for real people. I imagine more stability for the banking system, but at what cost? i.e. less money available for morgages, loans, etc if banks will be less 'risky'.

  • Comment number 84.

    I say well done Obama and Billy Bragg! At last someone is having the cahoonas to stand up to these clowns, unlike our government who seem to shy away from accountability.

    Why is it that bankers should get there bonuses when we their customers have had to endure so much hardship (poor interest rates & increased burden on our taxes) mainly caused by their actions?

    Great isn't it? They get zero accountability. Any other failed business (and the poor people who have had houses repossessed) would not have got bailed out at tax payers’ expense. Don't they (and the government) think they should put money back in the system before they start lining their pockets?

    It made me sick to the pit of my stomach when I heard a banker interviewed(anonymously) on BBC breakfast saying how they had taken bets on where riots would begin first and that he didn’t feel ashamed about his bonus.

    Banks say they are frightened of losing their talent pool if they don't pay bonuses, I say let them walk; someone else will fill their boots who might actually do a better job and for less money!

  • Comment number 85.

    Blimey! or to put it another way, an eye watering amount of agreement :)

    I'm sure Obama is bored with being a bank lapdog, it took losing that seat to wake him up. Let's see if he really can walk the walk.

    Good luck America - it won't be easy.

  • Comment number 86.

    There wouldnt be a fuss if gambling on currency, shares and commodities was left to the Book Makers and banks were banned from those gambling activities.
    Shares should not be "shorted" or borrowed, all shares should be paid for immediately the deal is confirmed. Companies are ruined by the gamblers and independent shareholders are all left stranded because of the abuse of shares for traders gain.

    Banks for banking and book makers for gambling. Is it really so difficult.

  • Comment number 87.

    ChangEngland (85) you're right. If Obama had revealed this policy earlier who knows it might have made a difference in the Massachusetts election.

  • Comment number 88.

    Every single person - taxpayers / shareholder / banker / person with a bank account need to consider a few things that you probably haven't thought about:

    1) The only reason you've been able to get credit / afford your houses in the past years is because of banks who have provided too much - you weren't complaining when you could get the good deals. Many people out there weren't too worried about having second homes and making fortunes on them, tying up the buyers market whilst sitting on fortunes. But when the bad times hit you claim its the Banks fault.
    2) You complain because Banks have lent too much in the good times (saying that they've taken too many risks), and then when Recession hits you complain that they are not lending enough (not taking enough risks) - make up your mind.
    3) It is you, me and everyone else that spurs the banks to be so greedy. Who do you think owns them? Yes thats right, your pension fund, your shares. Do you want a profit from your shares? Do you want a rising pension - if you're like me then you better hope that Banks are able to do that for you.
    4) Do you have a bank account? (I imagine the answer is yes) .. can I ask why? Is it because you want to make x% interest on your savings? Then that just proves that you are as a greedy as anyone else in this world including me. If you don't want the banks to succeed all you need to do is to put it under your bed and watch inflation melt it away.

    I'm not ashamed to say that the banks really messed up.. and I'm not ashamed to thank the banks for the wonderful returns on my savings / shares that I've seen in years either - I'm just ashamed of all the endless people who are completely contradicting themselves here and everywhere else (including you Robert).

  • Comment number 89.

    These are fascinating and brave plans from President Obama I feel. Perhaps the voters in Minnesota have done everybody a favour as I read on the blog https://notayesmanseconomics.wordpress.com. I also agree with him that it is good to see Paul Volcker influencing events again.

    Thanks for the update Robert

  • Comment number 90.

    This is just fiddling about on the edges of the problem,albeit on a big scale.

    The banks and our deposits with them are basically insured by the government. If the banks were made to pay the Bank of England the going rate for this insurance - for the entire value of the deposits they hold (ie a bond), they could then do what they liked within the existing regulatory framework. If they were going to take risky investments, they would have to disclose this, and it would be reflected in their annual premium . Oh,and this would eat into the profits. Banks just wouldn't have all the cash sloshing around to pay huge bonuses. AND the government would get more than enough from this to make up for lost tax revenues . Not doing any of this means that we are in effect subsidising banks by guaranteeing them against failure.

    Watch Vince Cable on this - I think he may be coming up with something similar from what he has said.

  • Comment number 91.


    "Of course its possible (perhaps even likely) that pure investment banks, such as Goldman Sachs, will be largely exempt."

    and from Goldmans website- Formed in 2002 and expanded in 2006, Goldman Sachs Bank USA is a FDIC-insured bank regulated by the Federal Reserve, and authorized to conduct banking business nationwide. Goldman Sachs Bank USA makes consumer and commercial loans and accepts federally insured deposits.

    A bit more research would have been useful for this blog. Goldmans through Rubins then Treasury Secretary and previously co-Chairman of Goldmans, pushed through the repeal of Glass-Steagall; so that Goldmans could setup a deposit taking bank. An action that many now regard as the trigger for the crunch!

  • Comment number 92.

    #88. ThinkingLong (maybe not long enough!)

    'I'm just ashamed of all the endless people who are completely contradicting themselves here and everywhere else (including you Robert).'

    It's not necessarily a contradiction to say that banks have over-lent (and over-borrowed) in a boom and under-lent in a recession. There is a problem with the banking system, and it has encouraged unsustainable behaviour by bankers and many of us. But the bankers were supposed to be the experts; they had the power to refuse loans; they were the ones pushing for deregulation; they made the most money out of it (and many still are making it). The prosecution rests.

  • Comment number 93.

    #88. ThinkingLong - think longer please!


    I am slightly bitter about this mainly because I have been unemployed for the past two years (now going into a 3rd..).

    What little savings I still have, it would be nice to have some interest or reward for having savings. At the end of the day it is our money and banks disproportionately reward themselves compared to their customers.

    Do you think it's fair that banks have made it difficult for people to borrow money? That they wouldn’t give a dam if you owed them money? All their exorbitant charges? All the peoples lives they have affected with there self centered greed??

    I feel very strongly about this. We should all refuse to pay our taxes in protest.

  • Comment number 94.

    Banking reforms, good idea. However, what is the chance it will get through Congress given that the Republicans will not want to agree to anything that damages their rich donors.

    Note the fight against healthcare reform which would impact on the HMOs and insurance companies profits and thus ability to donate the party of their choice.

  • Comment number 95.

    Surely this is not the same Geoge Osborne who was saying only months ago that this would damage the city and that the bankers would all leave and go abroad? Could this be a conversion on the road to the treasury? I think not! However more power to Obama's elbow I do hope he gets it through congress, and then where will the reticent bankers go? China? India?
    no point in going to Europe or the USA there won't be any oerpaid jobs for them. Oh dear, oh dear.

  • Comment number 96.

    Good. It's about time a major politician looked after the electorate.
    Just what did the bankers think was going to happen? Did they think? Can they think?
    The lobbyists will have to spend a few banksheets worth of dollars if they are to be successful in convincing the very angry American public that homelessness and unemployment for Americans is a price worth paying to give the bankers a bonus! Reds under the bed with all that 'terrifying socialism' will be the lobbyists tactic of choice as they try to hide the growing 'Bushvilles'. With so many Americans living in tented cities around Sacramenta, Seattle, Nashville, etc, Obama has to take strong action. Who could find Bushvilles acceptable here?

    The Guardian is reporting American officials will be over here next week discussing their plans with our government - so expect something similar here too.

  • Comment number 97.

    The problem isn't the banks per se, it's the capitalist system.

    Why should a few control all the capital & live a life of luxury whilst the rest of us have only our labour to sell to them & struggle to keep a roof over our heads?

  • Comment number 98.

    Banks only have themselves to blame. They have shown themselves as too greedy to self regulate, so Obama has got heavy.

    The US have found themselves a World Leader - something the UK hasn't had since Maggie.

  • Comment number 99.

    That's it. I am now a confirmed Obama fan

  • Comment number 100.

    "But President Obama did not say that the reform would only apply to those banks with a retail presence, such as JP Morgan and Citigroup (although perhaps it is what he meant to say). He said it would apply to "banks" as defined in US law - and Goldman became one of those in the autumn of 2008."


    Goldman became a bank in 2008 to get on the government gravy train. In 2009 it became something called a Financial Holding Company. a/c/t the Financial Times :

    The status allows Goldman to continue to be under the direct supervision of the Fed, but can continue to participate in activities that a regular bank normally wouldn’t, including private equity among other businesses. ... While Obama’s Glass-Steagall sequel, as reported, will certainly affect most financial institutions classified as BHCs, it’s unclear, as yet, whether Goldman will be able to simply shed its BHC status to avoid the new legislation. It’s also unclear whether the proposal will apply to Financial Holding Companies as well as BHCs.

 

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