Judgment suspended on Obama's rhetoric

BANK shares continued to fall across Europe and the United States yesterday in response to President Barack Obama's "fight I'm ready to have" with Wall Street on sweeping reforms.

Much uncertainty surrounds his proposals to break up "too big to fail" banks. What will fall into, or be excluded from the definition of "proprietary trading"? How badly will the US operations of UK banks be hit, bearing in mind some have already exited hedge funds and private equity operations? Could it even bring business to London, considering that Europe, with a long tradition of "all in one" banks, is set to resist Obama-style reform?

The UK is unlikely to follow, first because of the huge taxpayer stakes in two of our biggest domestic banks and the drive to improve capital ratios as a precursor to disposal. Divestment as outlined by Mr Obama would be likely to damage the prospect of the profitable sale of these taxpayer holdings in the medium term. Tax action has also been taken on bank bonuses.

Shadow chancellor George Osborne has sought to bask in the afterglow of Mr Obama's rhetoric, while adding that such reform here would proceed only with international agreement. Decoded, this means it is unlikely to happen. Mr Obama's speech was made in the aftermath of a political setback and the need for his administration to regain the political initiative. It was not a statement of regulatory precision, and judgment needs to be suspended until the details of the proposed reform are more clear.