Himfr.com Reports Will Obama's banking reforms prevent another recession?

U.S. President Barack Obama is pushing for radical banking reforms in a bid to prevent a rerun of the 2008 financial crisis that sent the global economy reeling and

sparked the worst recession since the 1930s.

But a number of critics have voiced concern over the president' s latest proposals -- which include capping the size of banks and limiting investments deemed too

risky -- saying such reforms may not prevent another financial crisis.

The harshest criticisms came from those who panned the proposal as an act of presidential desperation amid high unemployment and the loss of a key Senate seat in

recent elections.

Still, the plan has gained some praise internationally and some U.S. analysts said it deserves a closer look.

"While the financial system is far stronger today than it was one year ago, it is still operating under the exact same rules that led to its near collapse," Obama

said last Thursday when he announced the proposal.

"My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform, and when I see record profits

at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low and cannot refund taxpayers for the bailout, "

said the president. "It is exactly this kind of irresponsibility that makes clear reform is necessary."

But critics fret over the plan's lack of details.

"It's totally unclear how they are going to do it," said Douglas Elliott, a fellow at the Brookings Institution, of Obama's proposed limits to the size of banks.

Moreover, capping banks' size will do little to increase the financial sector's stability, he said.

Also of concern is Obama's proposed restrictions on " proprietary investments," a term Elliott said no one can really define.

"The problem is determining when an investment is 'proprietary, ' since every investment truly owned by a bank is proprietary in the sense that the bank will absorb

any gain or loss," he said.

And many investments are held for reasons that support public policy, such as to provide a source of liquidity in case a bank needs cash unexpectedly, he said.

"We need to focus on the risk management of the investments ... I would rather that the risk management focused on capital requirements and other incentives than

make a blanket ban on something we can't define effectively," he added.

The administration's earlier approach of placing higher capital charges and higher liquidity requirements is a better plan than forcing institutions to become

smaller, he said.


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