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US war on banks coming to UK next week

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US war on banks coming to UK next week. President Obama's pledge on Thursday afternoon to end the "excess and abuse" and a "binge of irresponsibility" in the financial system, shook shares in banks.

His proposals are twofold: first to stop banks from proprietary trading – where a bank bets on markets with its own money – for their own gain and against their own customers; and second, to limit the pace of sector consolidation to ensure no one bank becomes too large.

Mr Obama said banks would no longer "be allowed to own, invest or sponsor hedge funds, private equity funds or proprietary trading operations for their own profit unrelated to serving their customers." Officials from the US administration are reportedly planning to fly to London next week in an effort to persuade the UK government to adopt similar plans.

For the banks, the move threatens to hurt an area of business which has been highly lucrative for major investment banks in recent years, and could lead to the need for major banking conglomerates including Citigroup and Bank of America to hive off parts of their core business. Mr Obama's second aim, to limit bank size, will involve extending the current 10pc cap on the share of insured deposits to take into account what he called "wider forms of funding employed by large financial institutions."

Although major banks including JP Morgan Chase and Goldman Sachs chose not to comment, the Financial Services Roundtable, which represents the US's biggest banks, said: "The proposal will restrict lending, increase risk, decrease stability in the system, and limit our ability to help create jobs."

Marc Faber: Obama Makes Bush Look Like Genius

The US administration's interventions in the market will not solve problems and will bring about unintended consequences, Marc Faber, author and publisher of the "Gloom, Boom & Doom Report," told CNBC Friday.

President Barack Obama on Thursday proposed new limits on the size and trading practices of big banks, to prevent excessive risk-taking.

"I don't have a very high opinion of Mr. Obama," Faber told "Squawk Box Europe." "I was negative of Mr. Bush but I think Mr. Obama makes him look like a genius."

"Basically I think everybody will agree that in an economic system the market solves problems best."

The result of the slashing of interest rates to 0 percent in the autumn of 2007 was the surge in oil prices in the first half of 2008, because investors were looking for a place to put their money to get a return, he explained.

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