Thu, Jul 31, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

President Obama proposes limits on bank proprietary trading and size of liabilities of financial firms

Friday, January 22, 2010
Opalesque Industry Update - From international law firm Clifford Chance:

President Obama today proposed two new restrictions on financial firms:

- first, no bank or firm that owns a bank would be allowed to own, invest in or sponsor a hedge fund or private equity fund or engage in proprietary trading operations unrelated to serving customers; and

- second, the growth of the largest financial firms would be limited through an imposition of a cap on the market share of their liabilities.

The President announced he would work with Congress to get appropriate financial reform legislation adopted. The proposed restrictions would not be effective immediately.

Discussion

Funds: It appears the proposal's intent is to restrict the ability of financial companies that own a bank to invest in, and even sponsor, a private equity fund or a hedge fund. The proposal has yet to be described in meaningful detail but, based on the short Presidential statement, it is likely to have far reaching implications for the funds business of US banking organizations.

Proprietary Trading: A critical issue will be how "proprietary trading" is defined. The proposal specifically refers to proprietary trading unrelated to serving customers, which suggests that exposure incurred by banks as dealers would not be restricted. The proposal itself has no additional details.

Growth Limit: The proposed restriction on growth through liabilities limits is also not described in any detail in the proposal. The proposal states that the liabilities limits will supplement existing limits on the market share of deposits, so the structure of the liabilities limits may follow that of the deposit limit. Currently, a merger transaction between two banking organizations may not be consummated if following the acquisition the resulting institution would control more than 10% of the total amount of deposits in insured US banks.

Next Steps: The next step for the proposed restrictions is for consideration by Congress. It is difficult to predict whether these restrictions will make it into final financial reform legislation in their current form or whether they would even be a part of the final legislation. If they become part of the final legislation, it is likely that they will be watered down through compromise and it is also likely that some activities will be grandfathered. As with consideration of all of the proposals for regulatory reform, the next few months in Congress will be critical.


Clifford Chance Client Memorandum: Source


Bg

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing
  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Opalesque Roundtable: Success in hedge fund marketing not linked to performance, but investor appetite[more]

    Komfie Manalo, Opalesque Asia: Success in marketing a fund is not linked to the performance, but to investor appetite, to the way you can market the fund, and to how much time you can spend to raise assets, said Antoine Rolland, the CEO of incubator and seeding firm

  2. Hedge fund manager Winton Capital making headway with long-only strategy[more]

    From PIonline.com: North American investors are helping Winton Capital Management Ltd. make progress — albeit slowly — toward its founder's goal of becoming a $100 billion company. The firm's ticket to quadrupling its assets under management is unlikely to be one of its scientifically designed manag

  3. Opalesque Radio: Now is a good time to buy protection cheaply in the options market[more]

    Benedicte Gravrand, Opalesque Geneva: Investors are showing an increased interest in risk parity funds and strategies, Opalesque reported last year. Risk parity strategies have the

  4. The Big Picture: Charlemagne Capital smoothes risk out of frontier market investing with portfolio approach[more]

    Benedicte Gravrand, Opalesque Geneva: Opalesque recently talked to one of the portfolio managers of the Oaks funds, which are emerging and frontier market hedge funds focusing on equity long/short with a directional approach. They are run by

  5. Winton’s low-cost equities fund tops $1bn for first time[more]

    From FT.com: Winton, the London-based hedge fund, has increased the assets in its low-cost equities fund to more than $1bn for the first time in a sign that traditional stock managers may come under increasing pressure from computer-driven rivals. Winton, which manages about $25bn in total ass