Barack Obama takes on the bankers

BARACK Obama stepped up his campaign against Wall Street last night, with far-reaching plans for tougher regulation of the biggest banks in the United States.

• US president Barack Obama prepares to outline his plans for the financial sector at the White House yesterday. Picture: Getty

"We have to get this done," he said in the wake of the Democrats' stinging Senate loss in Massachusetts. "If these folks want a fight, it's a fight I'm ready to have."

It was a stern, populist lecture to Wall Street, for what he perceives as its abandonment of main street. However, the move, aimed at shoring up his own political base, sent bank shares tumbling.

Mr Obama said the government should be able to limit the size and complexity of big financial institutions, as well as their ability to make high-risk trades. "We have to enact common-sense reforms that will protect American taxpayers and the American economy from future crises," he said.

"In recent years, too many financial firms have put taxpayer money at risk by operating hedge funds and private equity funds and making riskier investments to reap a quick reward. 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."

Joining Mr Obama for yesterday's announcement were former Federal Reserve chairman Paul Volcker, who heads the president's Economic Recovery Advisory Board, and William Donaldson, who was chairman of the Securities and Exchange Commission under former president George Bush. Both men have advocated stronger restrictions on banks.

The White House is renewing Mr Obama's demand for an independent consumer financial protection agency as part of any overhaul. That is one of the major sticking points in the Senate; the House of Representatives has passed its version already.

The new proposal from Mr Obama aims to limit speculation by commercial banks and keep financial institutions from growing so big that they pose a risk to the economic system.

"When you see more and more of the financial sector basically churning transactions and engaging in reckless speculation and obscuring underlying risks in a way that makes a few people obscene amounts of money but doesn't add value to the economy – and in fact puts the entire economy at enormous risk – then something's got to change," Mr Obama said.

The president has branded bank executives as "fat cats" and proposed a levy on large banks to cover shortfalls in the government's $700 billion (430bn) financial rescue fund.

The president endorsed Mr Volcker's proposal to restrict proprietary trading by commercial banks. That would separate the commercial banks from investment banks.

Shares in some of the largest banks that could be most heavily affected by the measures unveiled yesterday slid after the announcement. The falls were led by Bank of America, which slid 5.7 per cent after the president's speech, with Goldman down 5.3 per cent, JPMorgan Chase 5 per cent and Citigroup 4 per cent.

Analysts say there is a new urgency in the Senate to respond to voter anger over Wall Street and bank bail-outs that helped propel Republican Scott Brown to victory in Massachusetts, in a seat long held by Democrat veteran Edward Kennedy, who died in August.

Mr Brown's victory gave the Republicans 41 votes in the 100-member Senate, enough to mount blocking moves and prevent Democratic legislation on healthcare or climate change from getting the votes they need.

However, Mr Obama's plan for tighter financial regulations could survive.

Administration officials believe that, while the Republicans may seek to block other aspects of the president's agenda, the party's Senate leader Mitch McConnell is considering making an exception in this case.

BACKING OBAMA

THE Tories have backed US president Barack Obama's crackdown on banks and accused the government of becoming internationally "isolated" over reform.

Shadow chancellor George Osborne said a Conservative administration would follow Mr Obama's pledge to limit the size of banks.

He went on: "I have said consistently that we should look at separating retail banking from activities like large-scale propriety trading – and that this was best done internationally. Coming on top of growing agreement on a bank levy, it shows that Conservatives are part of an emerging international consensus on these issues."