Are you sure?

Obama bank plan wins tentative support in Europe

France, Britain and Germany offered support for US President Barack Obama's plan to limit banks' size and trading activities but fell short of pledging to follow suit on the proposal that has stunned world markets.

Obama's dramatic proposals could rewrite the world financial order but experts said they were light on detail and could cloud the global approach fostered by the Group of 20 nations.

Obama made his proposals on Thursday, saying he was ready to fight resistance from Wall Street banks he blamed for helping cause the global financial crisis.

The plan would prevent banks from investing in, owning or sponsoring a hedge fund or private equity fund.

It would set a new limit on banks' size in relation to the overall financial sector and, perhaps most dramatically, could also bar institutions from proprietary trading operations, which are unrelated to serving customers, for their own profit.

Proprietary trading involves firms making bets on markets with their own money and has been the source of much of banks' bumper profits before and after the financial crisis.

French Economy Minister Christine Lagarde welcomed the proposal, saying it was a “very, very good step forward.”

“They see that regulation, which was a taboo word that was difficult to use in financial circles in the United States, is vital to contain ... banking excesses,” she said.

UK Treasury Minister Paul Myners said Britain had already acted to address problems in its banking industry.

“He's developing a solution to what he sees as the American issues, we've already taken the necessary action in the UK,” Myners said in an interview with Reuters Insider TV.

But Britain's opposition Conservatives, tipped by polls to win an election to be held by June, offered more solid support.

“President Obama has created a lot of space for the rest of the world to come up with what I think would be a sensible system of international rules,” Conservative finance spokesman George Osborne told BBC Radio.

“I have said consistently that we should look at separating retail banking from activities like large-scale propriety trading and that this was best done internationally.”

Doubts remain as to whether Obama's scheme can be enacted unchanged, not least since his party lost a key Senate seat this week, depriving it of a "super majority" in that house.

But it will strike a popular chord.

Banks' return to paying massive bonuses has prompted public and media outrage in the United States and Europe after taxpayer money was used to bail many of them out.

Wall Street sold off on Thursday and the threat that other countries will follow Obama's lead rattled European lenders.

Washington will have to gain worldwide support for its measures or risk international banks fleeing its shores.

In September, a summit of Group of 20 leaders hosted by Obama called for crackdowns on bankers' bonuses and a build-up in banks' capital.

But while there are still signs of international intent, different centers are increasingly pursuing different paths.

An official involved in the global regulation process said many in Europe were caught on the hop.

“Everybody was coordinating their work through the G20, the Financial Stability Board and the Basel Committee,” the official said. “Nobody knows the details or whether other countries may follow. This is creating regulatory confusion.”

The German finance ministry stressed the need to move forward internationally and said Berlin would present its own proposals on improving banking regulation.

“We see the new proposals as a helpful suggestion for the continuing discussions on an international level. And we're obviously aiming to find a solution to the problem of the 'too big to fail' issue,” ministry spokesman Michael Offer said.

Osborne also alluded to the dangers of acting alone and said an upcoming G20 meeting in South Korea should be the forum to thrash out agreed international rules.

“I don't want to do things that unilaterally damage the City of London, or unilaterally damage British banks,” he said.

A Dutch Finance Ministry spokesman said it supported the “general aim” of Obama's “ambitious” proposals but cast doubt on whether they would actually be possible.

Spain's deputy prime minister Maria Teres Fernandez de la Vega said her country shared Obama's views about the causes of the crisis but that each country should take its own measures.

“Every country should take its own measures because each one is different,” she told Spanish television. “In Europe, we are working towards a policy of financial control and any measures taken will be formed by consensus.”

A Spanish government source said the plan may not have much application in Spain, as proprietary trading was not widespread.

The European response echoed that to Obama's announcement last week that Wall Street banks should pay a levy of up to $117 billion to reimburse taxpayers for their bailout.

Britain, France and Germany extolled the idea but said they had their own plans and would not follow suit.

London and Paris plan a 50% tax on bank bonuses.

On the other side of the coin, the International Monetary Fund has been tasked to look at a global tax on financial transactions, proposed by Britain's Gordon Brown late last year and supported by European Union leaders.

The US administration is opposed to that. (Reuters)