Dramatic Obama bank plan wins cautious backing in Europe

French and British politicians offered support on Friday for US president Barack Obama's plan to curb banks' size and risk-taking, which has stunned markets and could rewrite the world's financial order.                                            

Obama made his proposals on Thursday, saying he was ready to fight resistance from Wall Street banks he blamed for helping cause the global financial crisis.                                            

The plan would prevent banks or financial institutions that own banks from investing in, owning or sponsoring a hedge fund or private equity fund.                                            

It would set a new limit on banks' size in relation to the overall financial sector and perhaps most dramatically, the plan could also bar institutions from proprietary trading operations, unrelated to serving customers, for their own profit.                                            

Proprietary trading involves firms making bets on financial markets with their own money rather than executing a trade for a client and has been the source of much of banks' bumper profits before and after the global financial crisis.                                            

French economy minister Christine Lagarde welcomed the proposal, saying it was a "very, very good step forward".                                            

"They see that regulation, which was a taboo word that was difficult to use in financial circles in the United States, is vital to contain and limit banking excesses," she said.                                            

Britain's opposition Conservatives -- tipped by opinion polls to take power at an election which must be held by June -- also expressed support, in stark contrast to their conservative Republican cousins in America.                                            

Conservative finance spokesman George Osborne said there was an emerging international consensus on forcing banks to separate their retail and proprietary divisions.                                            

"President Obama has created a lot of space for the rest of the world to come up with what I think would be a sensible system of international rules," he told BBC Radio.    

"I have said consistently that we should look at separating retail banking from activities like large-scale propriety trading and that this was best done internationally."                                            

Doubts remain as to whether Obama's scheme will be enacted unchanged, not least after his party lost a key Senate seat this week, depriving it of a "super majority" in that house. But it may well strike a popular chord.                                            

Banks'' return to paying massive bonuses has prompted public and media outrage in the United States and Europe after tax-payer money was used to bail many of them out.                                           

Goldman Sachs said on Thursday it would cut average compensation per employee to $498,000.                                            

What is certain is that Washington will have to get international support for its measures or risk international banks fleeing its shores.                                            

Wall Street sold off on Thursday after the plans and a wave of selling spread to Asian and European markets.                                            

"I can't say I'm convinced of the wisdom here," said Adam Carr, a senior economist at ICAP. "A bigger threat to the recovery and one I think we can all agree on is the growing prospect of over-regulation."