WASHINGTON (Reuters) - President Barack Obama said on Wednesday he wants additional financial reforms to make sure banks are not tempted to make risky bets that can pay off handsomely for a few if they succeed but can cause widely felt disruptions if they flop.
Obama said in an interview with American Public Media’s “Marketplace” that he is looking for ways to reform the bank profit and compensation structures to rein in incentives for traders to take big risks.
Reforms put in place after the financial crisis that triggered the painful 2007-2009 recession were a good start, but more is needed, he said, according to a transcript.
“That is an unfinished piece of business,” he said in a radio interview scheduled to air on Thursday.
Obama said he believes retooling banks will help address such concerns. In big banks, trading desks generate big profits, but traders can avoid being held accountable for trades that lose money by moving on, he said.
“You can generate a huge amount of bonuses by making some big bets; you will be rewarded on the upside,” he said. “If you make a really bad bet, a lot of times you’ve already banked all your bonuses.”
Financial reforms have provided some protection for taxpayers, but not enough he said.
“That’s going to require some further reforms,” he said. “That’s going to require us looking at additional steps that we can take.” He did not go into the details or timing of measures he may be considering.
A regulation published in December barred banks from making big trading bets with their own money, shutting down what was a hugely profitable business for Wall Street before the credit crisis.
The measure, known as the Volcker rule, was a late addition to the 2010 Dodd-Frank Wall Street reform law and was aimed at ensuring that banks can’t make speculative trades that are so large and risky that they threaten individual firms or the wider financial system.
Reporting By Mark Felsenthal; Editing by Ken Wills