Stock prices on Wall Street experienced their largest daily drop of the year on Thursday, with the financial sector under the most pressure as U.S. President Barack Obama proposed a restrictive law that would significantly reduce banks’ profits.
The Dow Jones index plummeted 213 points, or 2.01 percent, to 10,389 points. After falling more than 1 percent on Wednesday, the Dow Jones has now dropped 3.1 percent over the last two days, marking its largest two-day loss since June of last year. The S&P 500 index weakened by 1.89 percent yesterday, to 1,116 points, while the Nasdaq index fell 1.12 percent, to 2,265 points. President Obama proposed changes to the law yesterday that would limit banks’ ability to engage in risky trading of stocks, bonds, and other securities for their own account. The so-called ‘proprietary trading’, where companies use their own money to buy securities in the market, is one of the main sources of income for some of the largest U.S. banks.
As a result, stock prices in the financial sector fell sharply yesterday, with the S&P index for that sector dropping 2.9 percent. Prices of shares in banks that would see the largest profit reductions under the new law, such as Bank of America, Citigroup, and JPMorgan Chase, fell more than 5 percent. The price of Goldman Sachs shares also dropped significantly, by more than 4 percent, despite the bank reporting better-than-expected quarterly results. Goldman’s revenues from trading operations, including those that the U.S. government wants to limit, accounted for about 10 percent of the bank’s total revenues in the last quarter. Obama’s proposal will be discussed in Congress, and experts say that some laws need to be amended to prevent a repeat of the financial crisis from two years ago, but caution that the ‘knife should not be plunged too deep’. “Bankers have hurt themselves and need to be restrained somehow. On the other hand, they also need to be allowed to do their job for the benefit of the bank owners.
