Banks fall on Obama proposals

22nd Jan 2010 10:51

Shares in UK and European banks took a bashing Friday, in line with their US peers, as analysts considered the possible impact of US president Obama's tough series of measures to curb risk taking on Wall St. Royal Bank of Scotland, and Barclays, Deutsche Bank, BNP Paribas, Societe Generale and UBS all fell back heavily.Under the new proposals, banks operating in the US would have restrictions placed on their size and activities. 'We should no longer allow banks to stray too far from their central mission of serving their customers,' Obama said. JPMorgan Chase reckons that President Obama's proposals to stop proprietary trading will reduce the annual revenues of Goldman Sachs, Morgan Stanley, Credit Suisse and Deutsche Bank by around $13bn in total. Goldman Sachs and Morgan Stanley could be especially hard hit as they became commercial banks in 2008 to access funds from the Federal Reserve. Barclays was another identified as being vulnerable to curbs on proprietary trading and private equity business.The US proposals were welcomed by shadow chancellor George Osborne, who said: 'I have said consistently that we should look at separating retail banking from activities like large-scale proprietary trading - and that this was best done internationally.' Obama said measures imposed on banks could involve a limit on the amount of liabilities banks are permitted to take on, to stop them reaching a size where they could threaten the wider financial system. These limits would be on top of the existing 10% cap a bank can hold in the deposit market.'There has long been a deposit cap in place to guard against too much risk being concentrated in a single bank,' the President said.'The same principle should apply to wider forms of funding employed by large financial institutions.' Obama added he would rein in excessive risk taking by banning deposit-taking banks from running proprietary trading desks, hedge funds or private equity units. The proposals aim 'to cut down on excessive risk taking' among the largest banks, administration officials had said prior to the speech.