* Geithner has concerns over proposed bank limits--sources
* Treasury chief worried about competition, root of crisis
* Geithner tells PBS that limits not politically motivated
(Adds comments from Geithner and Summers, analyst comment)
By Karey Wutkowski and Steve Eder
WASHINGTON/NEW YORK, Jan 21 U.S. Treasury
Secretary Timothy Geithner has expressed some skepticism behind
closed doors about the broad bank limits proposed on Thursday
by his boss, President Barack Obama, according to financial
The sources, speaking anonymously because Geithner has not
spoken publicly about his reservations, said the Treasury chief
is concerned the proposed limits on big banks' trading and size
could impact U.S. firms' global competitiveness.
He also has concerns that limits on proprietary trading do
not necessarily get at the root of the problems and excesses
that fueled the recent financial meltdown, the sources said.
But a White House official said Geithner was on board with
Obama's economic team behind the proposals.
Geithner and Lawrence Summers, the director of President
Barack Obama's National Economic Council, worked closely with
Paul Volcker, who heads a panel of outside advisers, in
developing the proposals, the official said.
"The plan was submitted to the president with a unanimous
recommendation from the economic team," the official said.
In a television interview, Geithner said the proposal was
driven by a desire to ensure a stable financial system, not by
Geithner told PBS NewsHour the Obama administration decided
to unveil the proposals months after its original sweeping
financial reform plan to bring "a little more clarity" to how
big banks could be reined in. Geithner had backed a proposal
last fall to give regulators power to curb a firm's size.
Summers, in an interview with CNBC, said the latest
proposal was written before a Democrat, Martha Coakley, lost a
closely watched race for the Massachusetts Senate seat on
Tuesday. Obama had painted her opponent, Republican Scott
Brown, as a friend of Wall Street.
Obama's proposals would prevent banks or financial
institutions that own banks from investing in, owning or
sponsoring a hedge fund or private equity fund.
He called for a new cap on the size of banks in relation to
the overall financial sector that would take into account not
only bank deposits, which are already capped, but also
liabilities and other non-deposit funding sources.
The proposed rules also would bar institutions from
proprietary trading operations that are for their own profit
and unrelated to serving customers. For details
The administration had already sharpened its rhetoric
against Wall Street where the announcement was met with
disdain. Bank shares slid and the dollar fell against other
The proposals were largely driven by Volcker, a former
Federal Reserve chairman who for more than a year has advocated
curbs on big financial firms to limit their ability to do
The White House official said Obama's economic team
considered the concern that proprietary trading was not at the
heart of the problems that fueled the financial crisis.
But it concluded that reform needed to be about more than
just fighting the last war, it needed to address sources of
future risk as well, the official said.
Lawrence White, a professor at New York University's Stern
School of Business and a former regulator, said Obama's
proposals were "a solution to the wrong problem."
"They have this rhetoric that it was proprietary trading
that was the problem," White said. "That's wrong."
Obama has recently tried to capitalize on populist anger
against the big banks, proposing last week a major tax on banks
to recoup taxpayer losses related to the bailout.
Underscoring the high level of public anger at banks, a
majority of 1,006 Americans surveyed in a Thomson Reuters/Ipsos
poll said executive pay was too high. [ID:nN21222779]
Douglas Elliott, a former JPMorgan investment banker now
with the Brookings Institution, said he didn't know Obama's
motivations, but thought his move was "smart politics."
"Everybody hates the bankers now and when you come out with
something saying we are going to keep them from getting bigger
and taking outrageous risks, of course it comes out favorable,"
Elliott said. "I do have some concerns about the public policy
(Reporting by Karey Wutkowski in Washington and Steve Eder in
New York with additional reporting by Jeff Mason and Glenn
Somerville; Editing by Kenneth Barry and Diane Craft, Gary