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Banks bashed by Obama's war on risky business

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Banks bashed by Obama's war on risky business


Wall Street has reacted badly to the US president’s plans to limit the size and strategy of big banks.

The proposals are seen as the biggest regulatory reform of the sector since 1930. They include putting an end to the lucrative practice known as ‘proprietary trading,’ where banks gamble huge sums of their own money. Instead they would only be able to invest their customers’ funds. And they would also be restricted in the amount of business they can conduct, meaning bigger institutions may have to be broken up.

Excessive risk-taking by bankers lay at the heart of the 2008 financial crisis and consequent recession and Barack Obama says he’s dead set on preventing it happening again.

“If these folks want a fight, it’s a fight I’m ready to have. And my resolve is only strengthened when I see a return to old practices at some of the very firms fighting reform,” he said.

The war-cry prompted US stocks to record their biggest one-day fall since October, led by banking shares. JP Morgan and Bank of America both shed more than six percent. Goldman Sachs lost over four percent despite posting a healthy fourth quarter profit. Lobbyists are certain to fight Obama’s proposals in Congress.

But Obama does enjoy public support on this particular issue. Many Americans are angry that banks are handing out big staff bonuses while US unemployment is at a 26-year high.

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