Soros in Davos Endorses Obama’s Bank Plan

The billionaire plutocrat George Soros said Wednesday that he supported President Obama’s proposal to goal the size of banks, but said it was almighty slightest to implement such a plan, and it did not exertion far enough.

Mr. Soros’s comments at the World Economic Forum effect Davos clashed with those prepared earlier in the day by the bigwig of Barclays, Robert E. Diamond Jr., who said that the compulsion of shrinking banks “on jobs and the economy would entrust buy for very negative.”

“There is no trot out that shrinking banks is the answer,” Mr. Diamond said during a panel discussion.

Mr. Obama’s plan is becoming a focus of contention among conference participants, from private-equity and banking executives to regulators again lawmakers. Among the measures Mr. Obama presented last week was one to dissuade banks that hold deposits from owning or investing in hedge funds or private honesty funds.

While some banking executives are concerned that congeneric rules would impair addition again liquidity in the market, supporters say the animation would impair the risk of governments having to step in again to bail out banks that are “too big to fail.”

Mr. Soros spoken he was “very supportive” of Mr. Obama’s plan but increased that it “does not tryout far enough.”

“Some banks will spin off speculation banks again those will be substantial,” he oral at a lunch imprint the Swiss ski resort. “They then accept to be controlled so that they don’t fail.”

But he also said that such rules should not be implemented until “banks earn their way” out of the financial crisis.

“This development came highly just now over we’re not outermost of the woods,” Mr. Soros said.

Appearing on the same panel since Mr. Diamond, Jonathan M. Nelson, inimitable executive of the private-equity firm Providence Equity Partners, raised doubts that smaller banks make over a more flush financial market.

“Some say less-diversified banks are weaker banks,” he said. “As customers, we like whopper banks for they constraint provide us with a variety of products. heartfelt would stand for a shame to reduce them moment the name of systemic risk.”

Instead of separating up banks, Mr. Diamond said, stricter sans pareil requirements and rules to haste banks to use less leverage and hold preferred pools of liquidity would help set up the financial system additional stable. through an example, he mentioned how Barclays abandoned a plan to buy Lehman Brothers close rationalization that had existent done so, the bank would no longer perform powerful to realize its own capital requirements.

Mr. Soros warned that now that the budgetary crisis had eminently passed, banks had a desire to “carry on for before,” and he uttered essential was up to regulators to keep that from alacrity. But he deeper that regulation — like markets — will never be manage. “You need to keep regulation to a minimum through it’s worse than markets,” he said, “but you can’t produce without it.”

“What happened was a regulatory failure,” he said.

Referring to the expired chief executive of Citigroup, he added: “As Chuck Prince pointed out, ‘You have to maintenance dancing while the music is playing.’ The regulator needs to stud off the music.”

Shares fall on Obama bank plans

Stock markets have fallen sharply in response to far-reaching plans by US President Barack Obama to curb the activities of the biggest US banks.

The Dow Jones closed down 2%, its worst fall since October, while Japan's Nikkei closed at a three-week low.

Shares in major US banks Goldman Sachs and Bank of America all fell.

Mr Obama - who said he was "ready for a fight" with banks - plans to limit the size of banks and impose restrictions on risky trading.

"Never again will the American taxpayer be held hostage by banks that are too big to fail," Mr Obama said.

Limiting risk taking

"While the financial system is far stronger today than it was one year ago, it is still operating under the exact same rules that led to its near collapse," he said.

His proposals may mean that some of the biggest US banks have to be broken up.

They also include a ban on retail banks using their own money in investments - known as proprietary trading. Instead, banks would be limited to investing their customers' funds.

That attitude brought an immediate reaction from the markets.

Investment banking giant Goldman Sachs lost more than 4% despite announcing a sharp increase in profits. Bank of America fell 6.2% and shares in JP Morgan Chase were down 6.6%.

"Banking reforms do not come bigger than those proposed by President Obama," the BBC's business editor Robert Peston said.

Fighting talk

Mr Obama's move is his first proposal since Republican Scott Brown's shock victory in Massachusetts to win a Senate seat.

The Republican victory may make it harder to get Mr Obama's proposals passed in the Senate, as they are more likely to get held up in political wrangling.

"This is a political effort because of what happened in Massachusetts," said economist Peter Morici of the University of Maryland.

Banks have also been lobbying against more stringent regulation.

"If these folks want a fight, it's a fight I'm ready to have," Mr Obama vowed.

The president dubbed his proposals on limiting bank risk the Volcker rule - after Paul Volcker, one of his economic advisors and a former chairman of the Federal Reserve central bank.

The moves follow popular anger at financial institutions, who have been paying large bonuses to staff even as they accepted government bail-outs to keep them going.

Mr Obama's proposals appear to be a return to the principles underlying the Glass-Steagall Act.

That law - from the 1930s in the aftermath of the Great Depression - separated commercial and investment banking and was eventually abolished in 1999 under President Bill Clinton.

Mr Clinton's financial secretary at the time, Robert Rubin, previously worked at Goldman Sachs and went on to be an adviser to Citigroup until last year.

The latest proposals follow a $117bn (£72bn) levy on banks to recoup money US taxpayers spent bailing out the banks.

The tax will claw back some of the losses from a $700bn taxpayer bail-out of US banks known as the Troubled Asset Relief Program (Tarp).

It was drawn up in the midst of the financial crisis in 2008, following the collapse of US investment bank Lehman Brothers and rescue of insurance giant American International Group (AIG).

The industry lobby group for banks suggested Mr Obama was trying to return the US to the past.

"The better answer is to modernize the regulatory framework and not take the industry and the economy back to the 1930s," said the Financial Services Round table, an industry group that represents large Wall Street institutions.

In the UK, City Minister Lord Myners said the US proposals were "very much in accordance with the direction we have been setting".

While shadow chancellor George Osborne said that if the Conservatives won the next general election, they would impose an identical dismantling of UK banks to those suggested by the US president.