So, we used to have this thing called the Glass-Steagall Act, which separated investment banking from commercial banking. Then we didn’t anymore. Now the President has proposed new rules that would effectively restore some of the provisions of Glass-Steagall. Wall Street is like, so not cool with it, however.

The WSJ says:

A plunge in financial stocks weighed heavily on the broader market as President Barack Obama proposed the most extensive curbs on banks’ risk-taking since the outbreak of the recent financial crisis.

J.P. Morgan Chase and Bank of America were two of the worst performers. J.P. Morgan fell 4.2% and Bank of America was down 3.9%. Goldman Sachs Group fell 3.5%, despite reporting stronger-than-expected earnings before the bell. Citigroup slid 4.1%.

Meanwhile, the President had some tough words for banking lobbyists.

I welcome constructive input from folks in the financial sector. But what we’ve seen so far, in recent weeks, is an army of industry lobbyists from Wall Street descending on Capitol Hill to try and block basic and common-sense rules of the road that would protect our economy and the American people.

So if these folks want a fight, it’s a fight I’m ready to have. And my resolve is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see soaring profits and obscene bonuses at some of the very firms claiming that they can’t lend more to small business, they can’t keep credit card rates low, they can’t pay a fee to refund taxpayers for the bailout without passing on the cost to shareholders or customers — that’s the claims they’re making. It’s exactly this kind of irresponsibility that makes clear reform is necessary.

The proposal itself, called “the Volcker rule” would, according to a White House statement, limit the size and scope of banking institutions.

From the White House:

1. Limit the Scope – The President and his economic team will work with Congress to ensure that no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit.

2. Limit the Size – The President also announced a new proposal to limit the consolidation of our financial sector. The President’s proposal will place broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits.

What do you think?

US Stocks Drop Sharply;Financials Slide On Obama’s Bank Plan [WSJ]
President Obama: “Never Again Will the American Taxpayer be Held Hostage by a Bank that is ‘Too Big to Fail'” [White House Blog]
President Obama Calls for New Restrictions on Size and Scope of Financial Institutions to Rein in Excesses and Protect Taxpayers [White House]

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