US President Barack Obama was to yesterday propose new limits on the size of US banks after spending billions of tax-payer dollars to bail out “too-big-to-fail” firms, a senior US official said.
The measures would place sweeping new restrictions on a sector seen as responsible for sparking the biggest recession since the Great Depression of the 1930s.
“A couple of months ago the president began discussing with his economic team the need to include in financial reform more specific and stronger provisions to limit the size and scope of financial institutions” the official said.
The proposals aim “to cut down on excessive risk taking” among the largest banks after crises at a handful of the biggest firms threatened to choke the flow of cash to the US economy.
“[On Thursday] the president will announce a series of measures that address size and scope” of the institutions the official said.
Obama’s first year in office was dominated by efforts to rescue banks that were exposed to massive losses on the sub-prime mortgage market.
The official, who asked not to be named, said the new measures would limit banks’ ability to use their own cash to buy such financial instruments, so-called proprietary trading.
“The proposal will include size and complexity limits specifically on proprietary trading,” the source said.
Facing widespread voter anger over state take-overs of the troubled firms, Obama earlier this month proposed a tax on big banks and warned the banking industry not to block or water down his planned regulatory reforms.
“It is both in the country’s interests and ultimately in the financial industry’s interest to have updated rules of the road to prevent abuse and excess,” he said.
The new measures will have to be approved by Congress before becoming law.
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