// // //
// (Reuters) – Following are five key points about President Barack Obama’s proposal for limiting financial risk-taking by big banks.
The proposals, which require congressional approval, could force banks to shed businesses that provide big profit but also create big risks.
* Banks or financial institutions that own banks could not own, invest in or sponsor hedge funds or private equity funds.
* Caps or limits would be set on the relative size of banks, taking into consideration not only deposits but also non-deposit funding sources. Deposits already are capped to prevent too much risk being concentrated in a particular bank but other forms of funding are not.
* Banks could not engage in proprietary trading for their own accounts, although a White House official said they could make proprietary trades as part of their market-making business.
* In Congress, there is likely to be resistance from Republicans who oppose government limits on private firms and from financial industry lobbyists whom Obama already has derided. “So if these folks want a fight, it’s a fight I’m ready to have,” Obama said.
* Obama refers to proposed limits on banks’ activities as the “Volcker Rule” after former Federal Reserve Chairman Paul Volcker, who now heads a White House advisory board and has called for restoring the distinction between banks that take deposits and make loans and those that engage in capital markets and investment banking activities.
A legal division between banks’ commercial activities and investment banking existed until 1999, when the Depression-era Glass-Steagall Act was repealed.