Obama to Propose Knocking Banks Down to Size

President plans new limits on bank size, risk-taking
By Rob Quinn,  Newser Staff
Posted Jan 21, 2010 3:40 AM CST
Updated Jan 21, 2010 7:37 AM CST
Obama to Propose Knocking Banks Down to Size
President Barack Obama, seated with Paul Volcker, attends a meeting of the President's Economic Recovery Advisory Board.   (AP Photo/Charles Dharapak)

President Obama, going on the offensive against Wall Street banks "too big to fail," plans to propose measures to limit the size of banks and their ability to take risks, according to administration sources. Adopting an approach championed by former Fed chief Paul Volcker, he wants to bar commercial banks from the "proprietary trading"—using clients' funds to play the markets—that led to the financial crisis, the Wall Street Journal reports.

The proposal will stop short of reenacting the the Glass Steagall Act, which separated commercial banks from investment banks, but it would establish firewalls between divisions within the big banks to bar risky investments within commercial units. The rules could also bar banks from running hedge funds, investing in real estate, or private equity, the Journal reports; the collapse of two highly leveraged hedge funds led to the collapse of Bear Stearns.

(More President Obama stories.)

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