Europe Divided Over U.S. Bank Proposal, Seeks Global Pact

Mr. Obama on Thursday outlined a plan to prevent commercial banks and institutions that own banks from operating and investing in hedge funds and private-equity firms, while capping trading activity done for in-house accounts.

The move appears to be setting a barrier between commercial and investment banking, similar to the Depression-era Glass-Steagall Act that separated investment and commercial banking. That separation was repealed in 1999.

In Europe, major banks have traditionally adhered to the one-stop-banking, or "universal bank," concept of bundling traditional commercial banking with investment banking and other financial services under one roof.

Changing this, European governments believe, makes an internationally binding agreement the only alternative to prevent competing banking policies between banking centers. London, for example, would be at a competitive disadvantage to Frankfurt or Zurich if the U.K. government followed the U.S. lead but the German and Swiss authorities didn't.

In the U.K., whose finance-heavy economy was one of the biggest casualties of the credit crunch, the Labour government has backed off from any separation of risk in large banks or caps on size.

Paul Myners, the U.K. Treasury's financial services minister, said Friday that the U.K. government won't be following the U.S. plan to reform banking.


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