Obama calls for further Wall Street reforms
03 July 2014
President Barack Obama yesterday said that ''further reforms'' of Wall Street were needed, and argued that there remained too much focus on making profits through big banks' trading desks as opposed to investing in companies and the ''real'' economy.
In an interview with the Marketplace radio show, the president said, the 2010 Dodd-Frank law has established important policies to safeguard against another financial crisis but more could be done. He did not offer any specific proposals.
''Right now, if you are in one of the big banks, the profit center is the trading desk, and you can generate a huge amount of bonuses by making some big bets; you will be rewarded on the upside,'' he said in the interview, a transcript of which was published on the programme's website.
''If you make a really bad bet, a lot of times you've already banked all your bonuses. You might end up leaving the shop, but in the meantime everybody else is left holding the bag. Now what we've been able to do is to try to prevent taxpayers from being the folks who are left holding the bag. But it's still not a real efficient way for us to run a financial system. That's going to require some further reforms. That's going to require us looking at additional steps that we can take.''
He said he wanted additional financial reforms to make sure banks were not tempted to make risky bets that could pay off handsomely for a few if they succeed but cause widely felt disruptions if they flopped.
Obama said he was looking for ways to reform the bank profit and compensation structures to rein in incentives for traders to take big risks.
He said though reforms put in place after the 2007-2009 recession provided a good start, more was needed as this was an unfinished piece of business.
He said financial reforms had provided some protection for taxpayers, but not enough.
Under a regulation published in December, banks are barred from making big trading bets with their own money, which cut off what had been a huge revenue stream for Wall Street before the credit crisis.
The Volcker rule, as it is known, came as a late addition to the 2010 Dodd-Frank Wall Street reform law to restrain banks from making speculative trades that were so large and risky that they threaten individual firms or the wider financial system.