Shares for JP Morgan Chase & Co. (NYSE: JPM) and Bank of America (NYSE: BAC) plunged on Friday on the news of more interference in the financial industry from the Obama administration, with Bank of America falling 57 cent to $14.90, a 3.68 percent drop, and JP Morgan dropping $1.38 to end the session at $39.16, a 3.40 percent decline.
There is little if any consensus at this time concerning Obama’s proposed new rules, and it remains to be seen if it will even be viable or have any merit at all. To that end, Senate Banking Committee Chairman Christopher Dodd is being asked to call hearing to discuss the matter.
Richard Shelby, who is the top Republican sitting on the Senate Banking Committee had this to say about it: “If the Obama Administration believes this plan should be included in the financial regulatory reform package, Chairman Dodd should hold a series of hearings so the Banking Committee can determine whether the proposal has merit.” So far 10 members of the committee has called on Dodd to schedule hearings.
It’s interesting to not the response of Europe to this, as they think it’s a good idea but aren’t interested in going that route themselves. This speaks to the concerns of American lawmakers who in some cases believe it could hamper the competitiveness of big banks in America on the global level.
Some of the new rules proposed by Obama is to limit the size of the banks in America, cut back on the proprietary trading operations, and remove other activities deemed risky by the administration. Why not just end the industry all together if risk is the big deal with Obama.
This is the problem Obama has with his socialist leanings, as well as others who oppose free markets, and that is the idea of taking risk out of the operations. But even doing that creates new risk by making it more difficult to compete on the international level with larger foreign banks who aren’t crippled by these types of regulations.
No wonder Europe isn’t opposing the idea, as it would help put them in a stronger competitive position against their American banking counterparts.
The specifics of the new regulations and rules would be to keep banks from sponsor, own or invest in a private equity or hedge fund. The only proprietary trades Obama wants the banks to make is if it is in relationship to serving customers.
With the new plan Obama also wants to cap things like liabilities and other funding sources unrelated to deposits.
To me the major problem with this is it’s more populist related than anything else, and it’s about the only thing at this time Obama and his administration can focus on and get away with doing things and not be slammed by the American people, who are fatigued from the endless “changes” they don’t want but have been attempted to be forced upon them.
This could backfire from on Obama because it’s late in the game to bring it all up, and it keeps the idea in the back of the American people that he just won’t stop bringing the government to bear upon them in almost every area of their lives.
Even those in his own party realize they’ve been overdoing it and are calling to pull back. Obama the community organizer just doesn’t seem to have the will or discipline to do it.
