PRESIDENT Barack Obama will offer proposals to limit financial institutions' size and trading activities as a way to reduce risk-taking, an administration official said.
Mr Obama was expected to announce new rules overnight after meeting former Federal Reserve chairman Paul Volcker. They will be part of a regulation overhaul and will tackle companies' proprietary trading, the official said on the condition of anonymity.
Mr Obama is renewing his focus on economic issues in an effort to tap into voter anger about the struggling economy, taxpayer bail-outs of banks and growing bank profits at a time of 10 per cent unemployment and a federal deficit that rose to $US1.4 trillion last year.
The proposals could affect trading at some of the nation's largest banks, said Frederic Dickson, chief market strategist at DA Davidson & Co in Oregon. Banks conduct proprietary trading for their own benefit, not for that of their clients.
''It is an obvious target,'' Mr Dickson said. ''It has been a highly profitable business for those firms that have superior platforms. Whatever the details of the restrictions, it will draw Wall Street's attention.''
Mr Obama in June proposed an overhaul of US financial regulations to fix oversight lapses and excessive risk-taking that helped push the economy into a recession.
Last week the President announced a plan to impose a fee on as many as 50 companies to recover losses from the Federal Government's Troubled Asset Relief Program. It would be imposed from June 30 on companies such as Citigroup, American International Group and Bank of America.
''We've got a financial regulatory system that is completely inadequate to control the excessive risks and irresponsible behaviour of financial players all around the world,'' Mr Obama told ABC News. ''People are angry and they're frustrated. From their perspective, the only thing that happens is that we bail out the banks.''
Voter anger helped Republican Scott Brown win the late Edward Kennedy's US Senate seat in Massachusetts this week, giving Republicans the ability to block Mr Obama's top legislative priority, health-care reform. The Democrats had held the seat for over 50 years.
Details on the proposed rules are to be spelled out today. They could limit activities of banks such as Goldman Sachs, the most profitable investment bank in Wall Street history. Goldman reaped more than 90 per cent of its pre-tax earnings last year from trading and so-called principal investments, which include market bets on securities and stakes in companies.
Mr Volcker, chairman of the President's Economic Recovery Board, has criticised as ''reform light'' the financial industry's efforts to weaken financial regulation proposals in Congress.
A year ago, he issued a report from the Group of Thirty, a panel of former bankers, finance ministers and academics, calling for separation between commercial banks and businesses that engage in speculative risk-taking such as hedge funds and proprietary trading.
''Some market participants, possibly some in this room, seem to be suggesting that the events of the past couple of years were like a bad dream - a truly unsettling bad dream, but nonetheless something that in the cold light of day need not require a really substantive change in the structure of markets or corporate lifestyle,'' Mr Volcker said last week.
BLOOMBERG
