Obama Earthquake Rocks Wall Street

Courtesy of John Carney of Clusterstock

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Details of Obama’s new proposal are still hard to come by but this looks huge.

Sources inside major financial institutions are saying that they are scrambling to see if they will have to spin off operations, change their regulatory status, and perhaps find new business models.

Here’s the AP’s report:

President Obama is calling for tougher regulations on banks that would limit the size and complexity of large financial institutions.

The proposal would also limit banks’ ability to engage in high-risk trades. Restrictions would be placed on proprietary trading by commercial banks to separate those institutions from investment banks.

Obama said Thursday that without these regulations, the financial system will continue to operate under the same rules that led to its near collapse.

The announcement comes as Obama renews his calls for financial regulatory reform, which is being negotiated on Capitol Hill.

Obama’s announcement comes as the White House renewed Obama’s demand that any overhaul of banking regulations contain an independent consumer financial protection agency. The proposed agency is one of the major sticking points in the Senate and the central focus of negotiations between Democrats and Republicans on the Senate Banking Committee.

"The president is not going to compromise because lobbyists tell somebody that we shouldn’t have an agency that protects consumers," White House spokesman Robert Gibbs said. "That’s something the president’s not willing to give up."

The tougher measures to be announced Thursday aim to limit speculation by commercial banks and to keep financial institutions from becoming so big that they pose a risk to the overall economic system.

In focusing attention on Wall Street,however, the administration is also seeking to halt a wave of public anxiety that is benefiting Republicans and undermining Obama’s agenda.

News of the announcement came shortly after Treasury Secretary Timothy Geithner had a private dinner Wednesday night with chief executives from some of the top Wall Street banks.

There was also a new urgency in the Senate to move on the legislation — an attempt to respond to voter anger at Wall Street and bank bailouts that helped propel Republican Scott Brown to victory in a contest for the seat formerly held by the late Democratic Sen. Edward Kennedy.

Brown’s victory gave Republicans 41 votes in the Senate, enough to mount successful filibusters and prevent Democratic legislation on health care or climate change from getting final votes.

But financial regulations could survive.

"I don’t want to see us have to go through what we’ve been through here where we’ve been relying on one party to get something," Senate Banking Committee Chairman Christopher Dodd, D-Conn., said Wednesday.

Moreover, Geithner met with Senate Republican leader Mitch McConnell of Kentucky on Tuesday. Administration officials believe that while Republicans may seek to block other aspects of the president’s agenda, McConnell is considering making financial regulations an exception.

To that end, Dodd has been negotiating with the Banking Committee’s top Republican, Sen. Richard Shelby of Alabama.

"We’re talking, and obviously my hope is that in the next few weeks we’ll have a markup and move forward," Dodd added, referring to official committee action on the bill.