Barak Obama has clearly run out of patience, not just with Wall Street but with other governments and financial regulators around the world. His shock announcement yesterday of a a radical new regulatory regime for the banking sector has obviously been brewing for a long time and, one imagines, has been discussed, at least in principle, with other governments in the G20.The loss of a vital Senate seat to the Republicans in Massachusetts earlier this week galvanised President Obama into action. You can't help wondering if he had made this announcement on Monday whether the Democrats would have held on to the Massachusetts seat such has been the favourable reception of this plan on what the Americans refer to as Main Street.
The banks loved the idea that the G20 countries would only move on major regulatory reform by agreement because they knew that such agreement would be very hard to come by. President Obama has now made it clear that he is not prepared to wait for ever for such agreement to emerge - with the threat that it would be a watered down compromise when it did. Also, he needed to act after the Senate setback was followed up by Goldman Sachs' bullish bonus announcement. Flaunting their bonus billions in the face of Main Street was a pretty inept move.
I don't want to dwell on the detail of the plan devised by Paul Volckler or look at its impact on the sector but, instead, consider some of the broader political implications.
As I have already said, the coverage from the US today suggests that it will go down well and should do alot to boost the President's approval ratings. Whether that, in turn, helps him with his healthcare reforms remains to be seen but I would expect to see him closely associated with these proposals as they work their way through Congress.
In the UK, it has made the Labour government look even weaker. The attempts of the City minister Lord Myners today to suggest that the US plans are just a different way of achieving what the UK government has set out to do look very flimsy. They clearly go way, way beyond what the UK government has proposed and will lead to many people asking why the UK can't be as tough. Already, after a little wobble this morning, the Tories have lined up behind the principle, but not necessarily the detail, of the US plans and the Liberal Democrats, who will hold the crucial balance in a hung Parliament, have given them a ringing endorsement. Both opposition parties are strongly in favour of a split between investment and retail banking as a pre-requisite of major reforms.
Looking into the European Union, this will make some of the proposals it has been contemplating so far look a little timid and that will not be what the new Commission wants, especially Michel Barnier, the new French commissioner in charge of the internal market and financial services. He has come in amid a
blaze of threats about punishing those who contributed so much to the current economic woes of the world. I can't imagine he will be too happy at the Americans looking and acting tougher than the EU so expect so action when the new Commission begins work in earnest in the middle of next month.
In short, President Obama has probably unleashed a wave of even tougher regulatory reform around the world by leading from the front rather than waiting for a limited consensus.
