Obama Calls For New Restrictions On Bank Size, Trading Practices

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President Barack Obama Thursday called for new restrictions on financial institutions aimed at preventing future financial crises.

Obama, expressing frustration that the taxpayers were forced to enact a $700 billion plan to prop up the financial industry to prevent the country from slipping into a second Great Depression, said it was banks and financial institutions taking huge reckless risks that led to the financial crisis and the country's present economic woes.

"When the dust settled, and this binge of irresponsibility was over, several of the world's oldest and largest financial institutions had collapsed, or were on the verge of doing so," he said. "Markets plummeted, credit dried up, and jobs were vanishing by the hundreds of thousands each month."

He added, "To avoid this calamity, the American people -- who were already struggling in their own right -- were forced to rescue financial firms facing crises largely of their own creation."

Obama said that while the federal government has recovered most of the funds used to prop up the banks and has plans for recouping "every last dime," it is important to enact new rules to prevent similar situations from occurring in the future.

"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," he said. "These are rules that allowed firms to act contrary to the interests of customers, to conceal their exposure to debt through complex financial dealings, to benefit from taxpayer-insured deposits while making speculative investments, and to take on risks so vast that they posed threats to the entire system."

Obama said the new rules he is proposing would close loopholes that allowed firms to trade in risky products without oversight, strengthen capital and liquidity requirements to make the system more stable and ensure that the failure of any single institution will not pose a risk to the financial system as a whole.

"Never again will the American taxpayer be held hostage by a bank that is 'too big to fail,'" he said.

Obama called for a new requirement to ban banks from using depositor money to engage in private trades.

"We should no longer allow banks to stray too far from their central mission of serving their customers," 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."

The federal guarantees for banks, such as the Federal Deposit Insurance Corp. and access to low cost lending from the Federal Reserve, shouldn't be used to subsidize private trading, Obama said.

"When banks benefit from the safety net that taxpayers provide -- which includes lower-cost capital -- it is not appropriate for them to turn around and use that cheap money to trade for profit," he said. "We cannot accept a system in which shareholders make money on these operations if the bank wins but taxpayers foot the bill if the bank loses."

He added, "Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers."

Obama also called for limits to the size of financial firms and measures aimed at preventing further mergers of large companies.

"The American people will not be served by a financial system that comprises just a few massive firms. That's not good for consumers; it's not good for the economy," he said. "And through this policy, that is an outcome we will avoid."

Obama warned that an "army" of financial industry lobbyists would seek to block the reforms, which he said were common sense rules of the road to protect the economy and consumers.

"If these folks want a fight, it's a fight I'm ready to have," he said. "My resolve is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see soaring profits and obscene bonuses at some of the very firms claiming that they can't lend more to small business, they can't keep credit card rates low, they can't pay a fee to refund taxpayers for the bailout without passing on the cost to shareholders or customers."

He added, "It's exactly this kind of irresponsibility that makes clear reform is necessary. … We simply cannot return to business as usual."

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