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WASHINGTON, Jan. 21 (Wall Street Journal) - President Barack Obama on Thursday is expected to propose new limits on the size and risk taken by the country's biggest banks, marking the administration's latest assault on Wall Street in what could mark a return, at least in spirit, to some of the curbs on finance put in place during the Great Depression, according to congressional sources and administration officials.
The past decade saw widespread consolidation among large financial institutions to create huge banking titans. If Congress approves the proposal, the White House plan could permanently impose government constraints on the size and nature of banking.
Mr. Obama's proposal is expected to include new scale restrictions on the size of the country's largest financial institutions. The goal would be to deter banks from becoming so large they put the broader economy at risk and to also prevent banks from becoming so large they distort normal competitive forces. It couldn't be learned what precise limits the White House will endorse, or whether Mr. Obama will spell out the exact limits on Thursday.
Mr. Obama is also expected to endorse, for the first time publicly, measures pushed by former Federal Reserve Chairman Paul Volcker, which would place restrictions on the proprietary trading done by commercial banks, essentially limiting the way banks bet with their own capital. Administration officials say they want to place "firewalls" between different divisions of financial companies to ensure banks don't indirectly subsidize "speculative" trading through other subsidiaries that hold federally insured deposits.
The proposal could have the biggest effect on Bank of America Corp., Wells Fargo & Co., and J.P. Morgan Chase & Co., which control a large amount of U.S. deposits, as well as Goldman Sachs, Morgan Stanley and Citigroup Inc., which have a large presence on Wall Street.
If the proposal took effect, big banks could be forced to wall off certain activities in their investing banking units—which trade and underwrite securities and make their own bets on markets—from their traditional businesses, which make loans and take deposits.
President Obama reaching for some of that populist appeal that is bleeding away along the demise of healthcare, community building, and 'change' in general