Obama presses for tighter Wall Street regulation

US President moves to clamp down on controversial derivatives market

The fight to impose sweeping financial reform in the US is moving into its endgame, with Wall Street braced for tougher legislation from Congress than it had expected just a few months ago.

As President Barack Obama met with leaders from both parties to press the case for a strong reform package, it emerged that major Wall Street banks face big curbs on derivatives trading, one of their most lucrative activities.

And the industry seems likely to have to pay more than $50bn (£32bn) now to set up a fund for the resolution of future financial crises so that taxpayers are no longer left to bail out banks whose collapse threatened the wider economy.

In battle after battle, Wall Street's lobbyists have met with fiercer resistance than expected, in part because of the political resurgence of Mr Obama since he secured victory for his healthcare reform proposals.

The President and his aides hope a financial reform Bill will pass the Senate by the end of next month, despite opposition from Republicans. Speaking to reporters before yesterday's meeting at the White House, he said the goal was to prevent banks from becoming "too big to fail", and he also put a spotlight on the clampdown coming in the derivatives market.

Many exotic derivatives, such as the credit default swaps and collateralised debt obligations that were central to the financial crisis, do not currently have to be traded on exchanges. Instead, they are traded directly between banks, and the lack of transparency and the intertwining of financial institutions caused the 2008 financial panic to spread through the financial system. Much of the derivatives market exists in a "shadow economy", Mr Obama said, and "we want to get that into daylight".

The major Wall Street banks have been lobbying for significant exemptions to the rule that would force trading on to exchanges. But on Tuesday, it became clear that the Senate's agriculture committee, which oversees derivatives markets, wanted exemptions to be limited to a small number of transactions carried out on behalf of real economy companies.

The Senate Bill also includes a version of the so-called "Volcker rule" – named after the former Federal Reserve chairman Paul Volcker – which would prevent investment banks from owning hedge funds, private equity firms and from trading with their own money instead of just on behalf of clients. The House of Representatives passed its own reform Bill last year, and the two will have to be spliced together before the legislation is signed by the President. The centrepiece of both Bills is a new "resolution authority", which would supervise the closure of giant financial institutions that get into trouble. Winding down institutions requires short-term financing, and while the Obama administration originally proposed that it should come from taxpayers, with Wall Street paying it back later, both Bills seek to tap financial institutions now to set up a resolution fund. The House Bill puts the fund at $150bn, the Senate at $50bn.

Mr Obama said: "If there's one lesson that we've learnt, it's that an unfettered market where people are taking huge risks and expecting taxpayers to bail them out when things go sour is simply not acceptable."

Some reform issues remain unresolved, including exactly how much discretion regulators will be given to interpret the Volcker rule, and whether there will be explicit limits on the size of big banks. Republicans, who have fought to water down numerous aspects of the bills, say they will oppose all the plans on the grounds that they legitimise future bailouts of Wall Street.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Billie Piper as Brona in Penny Dreadful
tvReview: It’s business as usual in Victorian London. Let’s hope that changes as we get further into the new series spoiler alert
Life and Style
A nurse tends to a recovering patient on a general ward at The Queen Elizabeth Hospital in Birmingham
Arts and Entertainment
No Offence
tvReview: No Offence has characters who are larger than life and yet somehow completely true to life at the same time spoiler alert
Chuck Norris pictured in 1996
ebooksA celebration of British elections
Arts and Entertainment
Sarah Lucas, I SCREAM DADDIO, Installation View, British Pavilion 2015
artWhy Sarah Lucas is the perfect choice to represent British art at the Venice Biennale
A voter placing a ballot paper in the box at a polling station
Arts and Entertainment
The Queen (Kristin Scott Thomas) in The Audience
theatreReview: Stephen Daldry's direction is crisp in perfectly-timed revival
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Ashdown Group: Marketing Executive - 6 month FTC - Central London

£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

Ashdown Group: Junior Project Manager (website, web application) - Agile

£215 per day: Ashdown Group: Junior Project Manager (website, web application ...

Guru Careers: Software Engineer / Software Developer

£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

Day In a Page

General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power