Banks Face Losing PE Arms
President Barack Obama’s proposed overhaul of the banking industry could result in banks having to part ways with their private equity arms, but a resurgent Republican party makes that prospect unlikely.
The proposal, designed to limit risk-taking on Wall Street, states that “ too many financial firms have put taxpayer money at risk by operating hedge funds and private equity funds and making riskier investments to reap a quick reward.” The proposal states that banks have been able to make these bets while benefiting from special financial privileges, such as deposit insurance, reserved only for banks. “These privileges were not created to bestow banks operating hedge funds or private equity funds with an unfair advantage.”
If Obama’s proposal became law as written, it would affect almost every major bank on Wall Street, including Goldman Sachs, JPMorganChase, and Credit Suisse. However the proposal comes as the Democratic administration, reeling from declining poll numbers and the unexpected loss of Ted Kennedy’s Massachusetts Senate seat, is pushing a more populist tone. Judging from the lack of unity on the Democrats’s part for financial reform, and the likely unwillingness of most Republicans to support Obama’s financial overhaul, it is highly likely this particular aspect of reform will be ditched or watered down.
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An analysis of more than 5,000 pages worth of documents the
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