US Moves to Rein in ‘Too-Big-to-Fail’ Banks

WASHINGTON

PRESIDENT Barack Obama’s administration moved to rein in America’s largest banks this week, sending Congress new rules blocking mega-mergers and barring investments seen as too risky.

With Obama’s presidency still dominated by the economic fallout from the banking crisis, the Treasury sent lawmakers proposed new rules that would prevent financial firms from becoming “too-big-to-fail.”

The rules would ban government-insured banks from mergers and takeovers if the new company would hold more than 10 percent of market debt, according to the proposed legislation.

Banks would also be barred from trading in stocks or other financial instruments for their own benefit – so-called proprietary trading.

The Obama adminis-tration was forced to pump hundreds of billions of dollars into the US financial sector to cover losses from complex financial investments linked to the subprime mortgage markets.

Some commentators have said the financial meltdown was fueled by the elimination of rules that had forced banks to choose between proprietary activities and traditional activities, like making loans and collecting deposits.

Eyeing lightly regulated funds that are also blamed for spurring the crisis, the Obama administration called for banks to be prohibited from “sponsoring and investing in hedge funds and private-equity funds.”

The proposals must clear Congress before becoming law.

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