Obama’s bank plan: liked abroad, hated at home
President’s Wall St reforms run into opposition among US pols and bank lobbyists
Barack Obama, facing dramatically deteriorating political support for his domestic agenda, will this week try to sell his plans to limit the size and spread of the biggest US banks. But can the President, weakened by last week's defeat in Massachusetts, hope to get this legislation passed? And will others follow the US lead?
The proposals, which triggered a steep sell-off on global equity markets on Friday, are likely to feature prominently at
the annual summit of political and business leaders in Davos, Switzerland, opening on Wednesday.
So far they have met with international approval. Mario Draghi, chairman of the G20's Financial Stability Board, said the initiative "restores momentum to regulatory reform efforts". Philipp Hildebrand, president of the Swiss National Bank, said it was "certainly something we are extremely interested in". And the French Finance Minister Christine Lagarde offered: "I believe it is a very, very good step forward."
Yet Britain is unlikely to follow Obama's lead. Treasury officials maintain it is unnecessary to separate risky investment banking from retail banking or to cap the size of banks.
But the US initiative steals the thunder from Gordon Brown, who set himself up as a leading banking reformist. Yesterday, Labour MP John McFall, head of the parliamentary finance committee, said Brown's initiatives "could be seen as timid" while Lord Myners, the City minister, writing in today's Guardian, warns bankers they cannot continue to rely on taxpayers' "charity" and calls for a review of the investment baking industry.
The chances of Obama's proposals becoming law are uncertain at best. Republicans are confident their strategy of total opposition is paying off and after the Massachusetts victory they are in a position to block any legislation he introduces.
Nor does growing opposition to the reconfirmation of Fed chairman Ben Bernanke bode well. "I'm very skeptical about his nomination," former Republican presidential candidate John McCain said over the weekend. "The fact is that chairman Bernanke was in charge when we hit the iceberg. His policies were partially responsible for the meltdown we experienced."
Nor is it looking good for US Treasury Secretary Tim Geithner. He was conspicuously marginalised when Obama cited the inspiration of Paul Volcker, the former Federal Reserve chairman, in his effort to rein in US banks.
Banking lobbyists, too, are co-ordinating their opposition to reform. Charles Dallara of the Institute of International Finance told the Wall Street Journal that Obama's proposed laws "could undermine the fabric of cross-border capital flows that has been so crucial to post-war economic growth".
With such political opposition growing to financial reform, it's not even clear that the President will be able to hold unity within his administration. Democrats are plainly panicked.
"Obama has to decide whether he wants to be a transformational president, which looks optimistic at this stage, or merely an
effective president," Bruce Josten, head of government affairs at the US Chamber of Commerce, told the FT. "My advice would be that he pick up the phone and ask for Bill Clinton's advice on how to recover from a situation like this." ·
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