Obama Proposes Restrictions on Big Banks

BY Carolyn O'Hara  January 21, 2010 at 2:25 PM EDT

UPDATED 4:45 p.m. ET| Tonight on the NewsHour, Treasury Secretary Tim Geithner explains the thinking behind the president’s proposal. He will be followed by Rep. Scott Garrett (R-NJ), a member of the House Financial Services Committee.

In a fresh move to restrict the actions of Wall Street banks, President Obama proposed Thursday to limit the size and behavior of the nation’s biggest financial institutions. In remarks announcing the reforms, Obama said:

For while the financial system is far stronger today than it was one year ago, it’s still operating under the same rules that led to its near collapse. These are rules that allowed firms to act contrary to the interests of customers; to conceal their exposure to debt through complex financial dealings; to benefit from taxpayer-insured deposits while making speculative investments; and to take on risks so vast that they posed threats to the entire system.

That’s why we are seeking reforms to protect consumers; we intend to close loopholes that allowed big financial firms to trade risky financial products like credit defaults swaps and other derivatives without oversight; to identify system-wide risks that could cause a meltdown; to strengthen capital and liquidity requirements to make the system more stable; and to ensure that the failure of any large firm does not take the entire economy down with it. Never again will the American taxpayer be held hostage by a bank that is “too big to fail.”

According to the proposal:

  • Commercial banks would be prohibited from owning, investing in or advising hedge funds or private equity firms;

  • An existing cap prohibiting any single bank from owning more than 10 percent of the nation’s secured deposits would be extended to non-insured deposits and other assets;

Any such changes would first need congressional approval. In a conversation with reporters this morning, senior administration officials gave no specific information on what the assets subject to the extended cap might be, but said they wanted to work with Congress to develop a strong rule.