By Jeff Mason and Kevin Drawbaugh
WASHINGTON, Jan 21 (Reuters) – U.S. President Barack Obama proposed stricter limits on financial risk-taking on Thursday in a new populist-tinged move that sent bank shares lower and aimed to shore up his own political base.
Obama proposed new rules to prevent banks or financial institutions that own banks from owning, investing in or sponsoring a hedge fund or private equity fund. The rules would also bar institutions from proprietary trading operations, unrelated to serving customers, for their own profit.
Proprietary trading refers to a firm making bets on financial markets with its own money, rather than executing a trade for a client. These expert trading operations, which can bet on stocks and other financial instruments to rise or fall, have been enormously profitable for the banks but also increase market volatility.
The move comes on the heels of Goldman Sachs Group Inc’s report of stronger-than-forecast fourth-quarter profit and as the White House reels from a devastating political loss for Obama’s Democrats in Massachusetts on Tuesday.
“We have to enact common-sense reforms that will protect American taxpayers and the American economy from future crises,” Obama told reporters, flanked by his top economic advisers and key lawmakers.