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Bank shares tumble on Obama crackdown

Shares in Barclays and Royal Bank of Scotland (RBS) tumbled this morning after sharp falls on Asian markets in the wake of President Barack Obama’s pledge last night to wage war on American banks in the biggest regulatory crackdown on financial institutions since the 1930s.

Barclays’ shares fell a further 4.51 per cent to 270.25p this morning and are trading 13.1 per cent lower than at the start of the week. RBS, the state-owned lender, lost a further 3.65 per cent today to 34p.

There are fears that Mr Obama's proposals could force a radical restructure of American banks - a move welcomed by George Osborne, the Shadow Chancellor, who hailed Mr Obama’s intervention.

He said: “I have said consistently that we should look at separating retail banking from activities like large-scale proprietary trading — and that this was best done internationally. Coming on top of growing agreement on a bank levy, it shows that Conservatives are part of an emerging international consensus on these issues.”

The Treasury said that it would study Mr Obama's moves carefully.

The radical proposals would limit the size of institutions and bar them from the most cavalier trading practices.

The President said: “We should no longer allow banks to stray too far from their central mission of serving their customers. My resolve to reform the system is only strengthened when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low and cannot refund taxpayers for the bailout. If these folks want a fight, it’s a fight I’m ready to have. Never again will the American taxpayer be held hostage by a bank that is too big to fail.”

Flanked by his economic advisers, he said that Wall Street banks must: halt “proprietary trading”, where banks risk huge sums predicting the outcome of future moves in the price of commodities such as oil; operate more cautiously.

The clampdown on proprietary trading could cause difficulties for RBS which is attempting to sell RBS Sempra, its commodities trading business, and has been in talks with JP Morgan Chase. The bank has been forced to sell the operation by European competition regulators as of a condition of receiving state aid.

This morning, shares across Asia fell, with Japan's Nikkei down 3.6 per cent, the biggest weekly loss in three months taking it to a three-week closing low. In Hong Kong, the Hang Seng Index fell 2 per cent at 20,446.32 points, its lowest level for more than three months after reaching a four-month low earlier this morning.

London's FTSE 100 index of leading shares opened 20.8 points lower at 5,335.10, before bouncing back slightly, up 3.4 points to 5,338.61.

President Obama's comments had already prompted heavy falls in stock markets on both sides of the Atlantic last night, and on Wall Street share prices fell by more than 2 per cent at one stage.