Obama proposes restrictions for US banks

Activities of US banks are to be restricted according to Barack Obama’s new proposal. This comes a week after the largest firms have been hit with a responsibility fee to help recover bail out losses.

The first restriction is that US banks will have to limit activities and cannot enter any market they choose. Banks that have access to emergency funds from the central bank must not invest in private equity or hedge funds. They would also not be allowed to take part in proprietary trading for themselves this will only be allowed for their clients.

The second part focuses on their size. This would involve an increase in pressure on the cap for national market share. Banks already have a 10% cap. This would also include liabilities with the aim being to limit concentration.

Some US banks will be untouched by this as they only have a small amount of market share in one of the areas and can easily pick their market, for others it will not be that easy. Investment banks that have diversified during the crisis would be faced with a choice of which area to stay trading in.

The plan does not seem to help in the way it is hoped, these banks will still be huge. The proposal is not aimed to decrease the banks size as officials have said this proposal is to limit growth not decrease the banks size.

The plan still needs to make it through Congress until it will affect US banks.

Do you think the banks deserve these restrictions? Do you think they will help?