WASHINGTON — Trying to ride a wave of public anger at Wall Street, President Barack Obama on Thursday proposed tough new restrictions designed to limit the size of the nation's largest commercial banks and reduce the risks they take in complex and exotic investments.
The president stopped short of urging a return to the days when commercial banks just lent money and were locked out of investment activities. However, his proposal Thursday, likely to play well in the heartland, is designed to rein in what are viewed as Wall Street excesses.
"My message to leaders in the financial industry is to work with us, not against us," Obama said. "If these folks want a fight, it's a fight I am ready to have."
Flanked by his economic team, congressional leaders and former Federal Reserve Chairman Paul Volcker, who has long been urging much of what Obama announced, the president took aim at Wall Street.
"While the financial system is far stronger today than it was one year ago, it is still operating under the exact same rules that led to its near collapse," Obama said before cameras at the White House. "My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low and cannot refund taxpayers for the bailout. It is exactly this kind of irresponsibility that makes clear reform is necessary."
Financial markets didn't like what they heard. The Dow Jones Industrial Average fell more than 224 points as Obama concluded his speech. The Dow closed down 213.27 points to 10,389.88, its worst showing since Oct. 30.
But Wall Street critics welcomed Obama's proposal.
"The basic idea … is a really, really good step," said Dean Baker, co-director of the Center for Economic and Policy Research, a liberal research center.
It came just days after the Democrats lost a Senate seat in Massachusetts, as Obama strives to assure voters that he's siding with working people rather than the wealthy elite and searches for ways to redirect voters' anger away from him to others, such as big bankers.
The administration hopes that the new proposal, which Obama called the "Volcker Rule," will be added to the Senate's version of the financial regulation bill. The proposal prohibits commercial banks from conducting proprietary trading in securities and other investments. If they invest in stock markets or commodities exchanges on behalf of clients, they wouldn't be allowed to do it for their own benefit, too.
The Financial Services Roundtable, the lobby for the financial sector, put out a statement immediately after the president's speech calling it bad policy.
"The proposal will restrict lending, increase risk, decrease stability in the system and limit our ability to help create jobs," said Steve Bartlett, the group's president.