By: Mike Campbell
In a classic example of shutting the stable door once the horse has bolted (and possibly the wrong stable door at that) President Obama has announced his plans to change the banking sector to avert a future potential financial crisis such as the one we have been living through. The President is seeking to limit the size of the banks and to place restrictions on what are perceived to be “riskier” investments. The philosophy is that no bank should be so pivotal to the US economy that it cannot be allowed to fail – this was perceived to be the case this time around. The policy, if adopted, could lead to the break up of several titans of the American financial world. The plan also calls for a ban on the practice of proprietary trading whereby retail banks use their own money in investments. The move is likely to go down well with the man in the street, but is not being well received by the markets. Markets around the world shed value on Thursday and Friday following the announcement with financial stocks being hardest hit. JP Morgan lost 3.4% and Barclay’s Bank was down by 4% on Friday. It remains to be seen if other international leaders will follow suit, but there are signs that this may not be the case with ministers in the UK stating the view that reforms on this side of the pond have already gone far enough. In Japan, the Nikkei closed at its lowest level for three weeks, reversing the optimism that came in with the new decade.
In London, today, officials from the financial institutions of the world’s wealthiest nations have been meeting to try to thrash out alternatives to public sector bailouts in the event of further financial sector calamity. It is thought that some form of compulsory insurance or a tax levy are being discussed.
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