Photo: Left to right - the head of the bank Blankfeyn Lloyd (Lloyd Blankfein), James Dimon (James Dimon), John Mack (John Mack) and Brian Munihan (Brian Moynihan) take the oath on Capitol Hill earlier this month before testifying to Congress, the Commission of Inquiry financial crisis, which investigates the reasons for its occurrence.
President Barack Obama has proposed new limits on the size and activities of the largest banks in the country, urging regulators to a more rigorous approach, which has pushed down bank shares and boosted his personal position at the time of the company, showing that he "will not allow lowering the Wall Street.
Having on his side of the former Federal Reserve chairman Paul Volcker (Paul Volcker), Obama stated that he wants to tighten the constraints on financial institutions and compel them to choose between the government security system, and usually quite a lucrative business for sale at its own expense, or possession of hedge funds or private equity funds. Walker was an outspoken supporter of such rules, until recently, Obama's chief economic advisers, including Treasury Secretary Timothy Geithner (Timothy Geithner), and Lawrence Summers (Lawrence Summers), were not so inspired.
"Never again will the American taxpayer will not be held hostage to the bank, which is too big to fail" - Obama said on Thursday, two days after the voters have blocked its ability to follow his plan by sending a Republican to the Senate in order to occupy the vacant seat after the death of Edward Kennedy (Edward M. Kennedy). Election defeat the Democrats the 60 votes are often required to make important decisions through the Senate.
Administration officials said they did not try to revive the Depression era law known as the "law of Glass-Stigalla, which severely shared commercial and investment banks. Their proposals do not compel the existing financial institutions to reduce the size of its activities.
If Obama's bill will be enacted by Congress, it means that his proposals could make significant changes in the activity of the largest banks in the country. The vision of a new, limiting the profitability of regulation, hit the bank shares on Thursday, lowering the Dow Jones at 213.27 points, or 2%, to 10,289.88. Some financial stocks have fallen more than 5%, although it rebounded slightly after Barney Frank (Barney Frank), a Democrat from Massachusetts and chairman of the Committee on Financial Services, said that the new regulations come fully into force after 3 or 5 years, but not right now. Taking aim at J. P. Morgan Chase & Co. was the hardest, falling shares amounted to 6,6%.
The fate of Obama's proposal remains uncertain. The White House has already adopted a provision that gives regulators the right to limit the scope and scale of banking activities. Approval of Congress now depends mainly on the Republicans in the Senate. Several Republicans skeptical look at Obama's proposal, put forward on Thursday. "Let's solve the problem," - said the Republican from Arizona, Sen. Jon Kyl (Jon Kyl). "No need to search for" ghost "in order to transfer it to the attention of the public and to withdraw from the mistakes the administration."
However, the political environment to the major banks are resolutely hostile, the Democrats need only a few Republican votes to approve the version of what Obama called "rule Volcker. Senator John McCain, Republican of Arizona, said that the White House, apparently, is close to a proposal, co-author of which he is to restore the restrictions on banks, which were abolished in the early 90's. "I think that a number of proposals Obama is moving in this direction, but so far I have not had the opportunity to study the details."
Large banks and industry groups say Obama's proposal unnecessary and unwise. "If people focus on the things that have caused or contributed to the financial crisis - that there will be no trading," - said David Viniar (David Viniar), CFO of Goldman Sachs.
In the past few years, banks have been increasing their profits in areas that lie far outside the deposits, lending, trading stocks and bonds on behalf of clients.
Some bought or sponsored hedge funds. Others took up investing their own funds in the markets.
After the collapse of Lehman Brothers and rescue of American International Group in the autumn of 2008, investment banks Goldman Sachs and Morgan Stanley formally became banks, which gave them access to Fed loans and federal guarantees for their loans in the financial markets.
When the crisis ebbed, Goldman and some other banks were able to borrow at low interest rates and move the trading profit on their accounts. This gave Volcker and his allies, who include Vice-President Joe Biden (Joe Biden), a new force for their point of view, namely that the government supported banks should be allowed to take on more trading risk.
"The key issue is that agencies that receive support from the taxpayers, should not be able to profit from its own investments", - said Austin Goolsbee (Austan Goolsbee), economist at the White House, which has staffed the Presidential Advisory Council, headed by Volcker.
The bank had gathered on Thursday to talk about Obama's proposals, mainly on the likely effect on areas where the bank capital is intertwined with the funds of clients. The new rules are likely to force JPMorgan to give up equity in One Equity Partners, which invests the money of the firm. Disentangle direct investment in Goldman will be harder, as more than a cunning scheme lies in the fact that the organization invests its money in the same funds, which invested the money of investors.
Under Obama's proposal, banks that accept deposits are insured or eligible to hold the Fed will be allowed to invest or sponsor of hedge funds or investment funds. "You can do your own trading operations or be the owner of the bank, but you can not do these two things at once," - said an administration official.
The President also called for an extension of the 1994 Act, which prohibits banks buy other banks, if such a deal could bring more than 10% of State-guaranteed deposits. He would like to expand the use of restrictions on other types of financing, such as short-term borrowing of banks in financial markets and may cut the proportion of assets that can retain a firm.
Announcement on Thursday - this is the last step of the way the White House attack on Wall Street and banks. Earlier this month, the president proposed a new commission for the amount of large banks and insurance companies, which could reach $ 90 billion over 10 years, ostensibly to cover the costs of rescue financial companies and motorcar giants.
Caught lasso | How Obama's proposals blow to U.S. banks
If Obama's proposals will go through Congress, the profits of almost all large U.S. banks is likely to be twisted into a knot and reduced. Explanations for these organizations:
Bank of America - on their own trading accounts have less than 1% of total income. Own trading unit, and direct investment funds, BAML Capital Pertners may be affected, but Bank of America does not manage hedge funds.
Citi - on their own trading accounts have less than 5% of total income. Some domestic direct investment, real estate and hedge funds may be affected.
Goldman Sachs - - on their own trading accounts for about 10% of total income. Goldman, together with our clients and keeps money in domestic investment and hedge funds.
J. P. Morgan Chase and CO. - On their own trading accounts have less than 1% of the income of the company. One Equity Partners domestic investment fund, which made $ 141 million from $ 3.28 billion fourth-quarter earnings should be dismissed. The bank also has a hedge fund.
Morgan Stanley - Shares in the management of several hedge funds and one internal operation under threat, along with the rapidly changing our own Department of Commerce. In general, these shares Morgan Stanley less than 5% of revenues.
Wells Fargo has inherited some of their own trading operations after buying Wachovia in 2008, but lost much of this business to date.
The Wall Street Journal
January 21
January 21
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