Friday, January 22, 2010

Obama bank plan wins tentative support in Europe

LONDON/PARIS (Reuters) - France, Britain and Germany offered support on Friday for President Barack Obama's plan to limit banks' size and trading activities but fell short of pledging to follow suit on the proposal that has stunned world markets.

Obama's dramatic proposals could rewrite the world financial order but experts said they were light on detail and could cloud the global approach fostered by the Group of 20 nations.

Obama made his proposals on Thursday, saying he was ready to fight resistance from Wall Street banks he blamed for helping cause the global financial crisis.

The plan would prevent banks from investing in, owning or sponsoring a hedge fund or private equity fund.

It would set a new limit on banks' size in relation to the overall financial sector and, perhaps most dramatically, could also bar institutions from proprietary trading operations, which are unrelated to serving customers, for their own profit.

Proprietary trading involves firms making bets on markets with their own money and has been the source of much of banks' bumper profits before and after the financial crisis.

French Economy Minister Christine Lagarde welcomed the proposal, saying it was a "very, very good step forward."

"They see that regulation, which was a taboo word that was difficult to use in financial circles in the United States, is vital to contain ... banking excesses," she said.

UK Treasury Minister Paul Myners said Britain had already acted to address problems in its banking industry.

"He's developing a solution to what he sees as the American issues, we've already taken the necessary action in the UK," Myners said in an interview with Reuters Insider TV.

But Britain's opposition Conservatives, tipped by polls to win an election to be held by June, offered more solid support.

"President Obama has created a lot of space for the rest of the world to come up with what I think would be a sensible system of international rules," Conservative finance spokesman George Osborne told BBC Radio.

"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."

Doubts remain as to whether Obama's scheme can be enacted unchanged, not least since his party lost a key Senate seat this week, depriving it of a "super majority" in that house.

But it will strike a popular chord.

Banks' return to paying massive bonuses has prompted public and media outrage in the United States and Europe after taxpayer money was used to bail many of them out.

Wall Street sold off on Thursday and the threat that other countries will follow Obama's lead rattled European lenders.

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