Shares in Barclays fell steeply following President Barack Obama’s announcement of the new reforms that he will be introducing to Wall Street. RBS shares also fell as a result of the news, reflecting investors’ fears over what the events in the United States will mean for the banking system in the UK.
Barclays' shares plunged 4% the morning after the announcement, and shares in RBS fell by an even larger 5%. The fall in shares in these two banks reflects their greater involvement in the American banking system than other UK banks.
Obama is planning to break up the big banks if they have both large retail and commercial arms. They will also be forced to split their proprietary trading from other operations. This is where they are involved in trading securities with their own money and not that of clients. There will also be greater restrictions in place for activity surrounding hedge funds and private equity. The overall aim is to stop any bank from becoming “too big to fail” in the words of Obama.
American banks employ many workers in the City, and it is likely that these banks will be the worst affected by the changes. Big names that could take a hit include JPMorgan, Goldman Sachs and Citigroup to name but a few.
It is also likely that the UK will follow where the US has led. George Osborne has said the Tories will back the regulation. Speaking to the BBC Radio 4 Today programme, he said that “President Obama is creating a lot of space for the rest of the world to come up with new systems of regulation.”
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