Worldwide stockmarkets have been hit by US plans for banking reform, which saw share prices in the US and on other markets fall on the news that Mr Obama plans to curb activities of the US’s largest banks by limiting their size and restricting risky trading.
The Dow Jones closed down 2% over night with shares in banks particularly hit.
Mr Obama said he was “ready for a fight” adding “Never again will the American tax payer be held hostage by banks that are too big to fail”.
The measures announced may mean that some of the world’s largest banks may need to be broken up.
The timing of the announcement has also been questioned, coming on the heels of the shock Democratic defeat in Massachusetts and the announcement by Goldman Sachs of record $13.4 billion profits in 2009.
US plans seem to have been welcomed on this side of the Atlantic with the City Minister, Lord Myners, saying that US proposals are “very much in accordance with the direction we have been setting”. The Tories also said that they will follow US plans should they win the next election.
Whilst all this may sound extremely sensible and should go some way to curbing the worst excesses of the world’s banks we must all remember that there is a hidden side effect. Much of our money, which is sat in pensions and various other investments, will ultimately invest in banking shares. For example the popular M & G Recovery fund, which was worth approximately £4.5 billion in December 2009, has 6.2% of its assets invested in HSBC.
Whilst we may all think that the bank’s are getting some well deserved medicine, the price could well be an impact on the value of our pensions and other investments.
