June 16, 1933: Washington, DC- President Franklin D. Roosevelt affixes his signature to the Glass-Steagall Bank Reform Act--deposit insurance measure, one of the last bits of legislation put through before Congress adjourned, at the end of the famous first 100 days of the Administration. Behind the President (l-r) are: Sen. Allen Barkley; Sen. Thomas Gore; Sen. Carter Glass; Comptroller of Currency J.F.T. Connors; Sen. William G. McAdoo; Rep. Henry S. Steagall; Senator Duncan U. Fletcher; Rep. Alan Goldsborough; and Rep. Robert Luce. In addition to deposit insurance, this second Glass-Steagall Act, separated investment banking and commercial banking, which is why Morgan Stanley and JP Morgan are two different firms. Commercial banks were seen as having taken on too much risk in share trading, with depositors' money, up to the October 1929 Crash. The Glass-Steagall Act was repealed by Congress in November 1999, a measure that has been termed the "Citigroup Authorization Act." Robert Rubin had pushed for repeal of the Glass-Steagall Act as Treasury Secretary. He resigned in July 1999 and was succeeded by Lawrence Summers, now President Obama's head of the National Economic Council. President Clinton called Rubin the "greatest Secretary of the Treasury since Alexander Hamilton" - - President George Washington's Treasury Secretary - - and the former Cabinet officer, who had spent 26 years at Goldman Sachs before joining the Clinton Administration, took a senior position at Citigroup. Rubin who earned $17.0 million at Citi in 2008, was not aware of the detail of $55 billion of collateralized debt obligations (CDOs) and other subprime-related securities on the group's balance sheet. "The answer is very simple," he told Fortune Magazine. "It didn't go on under my nose." The New York Times reported in November 2008 that in September 2007, Citigroup’s then chief executive, Chuck Prince, had learned for the first time that the bank owned about $43 billion in mortgage-related assets! On January 2, 2009, Citigroup said that Robert Rubin had resigned as a senior adviser and would not seek re-election as a board director. The Wall Street Journal says Rubin made $115 million in pay since 1999, excluding stock options. Rubin told the Journal his pay was justified and that there were higher-paying opportunities available to him. "I bet there's not a single year where I couldn't have gone somewhere else and made more," he said. Asked if he had any regrets, Rubin said: "I guess that I don't think of it quite that way," adding that "if you look back from now, there's an enormous amount that needs to be learned" - - Michael Hennigan - Finfacts Photo: © Bettmann/CORBIS

The Wall Street Journal reports that President Barack Obama on Thursday is expected to propose new limits on the size and risk taken by the America's biggest banks.

The Depression-era Glass Steagall Act, which mandated the separation of commercial and investment banking was repealed in 1999. In 1935, J.P. Morgan & Co. employees Henry S. Morgan (grandson of J.P. Morgan) and  Harold Stanley established the investment bank Morgan Stanley to comply with the law.

If Congress approves the Obama proposal, the White House plan could permanently impose government constraints on the size and nature of banking.

The Journal says Obama's proposal is expected to include new scale restrictions on the size of the country's largest financial institutions. The goal would be to deter banks from becoming so large they put the broader economy at risk and to also prevent banks from becoming so large they distort normal competitive forces.

Obama is also expected to endorse, for the first time publicly, measures pushed by former Federal Reserve Chairman Paul Volcker, which would place restrictions on the proprietary trading done by commercial banks, essentially limiting the way banks bet with their own capital. Administration officials say they want to place "firewalls" between different divisions of financial companies to ensure banks don't indirectly subsidise "speculative" trading through other subsidiaries that hold federally insured deposits.

Bloomberg says the rules could limit activities of banks like Goldman, the most profitable investment bank in Wall Street history. Goldman reaped more than 90% of its pretax earnings last year from trading and so-called principal investments, which include market bets on securities and stakes in companies.

Goldman reports its quarterly earnings today. Morgan Stanley reported yesterday, and JPMorgan published its results last week.

Volcker, chairman of the President’s Economic Recovery Board, has criticized as “reform light” the financial industry’s efforts to weaken financial regulation proposals in Congress.

A year ago, Volcker issued a report from the Group of Thirty, a panel of former central bankers, finance ministers and academics, calling for separation between commercial banks and businesses that engage in speculative risk-taking such as hedge funds and proprietary trading.

Global recovery

The global economic recovery that is now underway will slow later this year as the impact of fiscal stimulus wanes, according to a new report from the World Bank. Financial markets remain troubled and private sector demand lags amid high unemployment. The report predicts that the fallout from the crisis will change the landscape for finance and growth over the next 10 years.

Global GDP, which declined by 2.2% in 2009, is expected to grow 2.7% this year and 3.2%percent in 2011 --  se link to story in Box below.

Economic View; Greece’s problems are the euro’s too

Goodbody chief economist, Dermot O’Leary, comments: "If there was any doubt that the continuing problems in Greece was a issue not only for the country in question but also the euro-area as a whole, one should have a look at the recent movement in the euro. Investors are increasingly betting that Greece’s fiscal problems will trigger further concerns in other peripheral euro-area economies with their own problems. The euro has fallen to $1.41, from $1.44 at the start of the year, while relative to sterling, the rate has moved from 89p to just under 87p this morning.

There are factors at play in the US and UK economies that may be causing their respective currencies to appreciate also, including yesterday’s better than expected labour market data and the higher inflation readings the day before. However, it is our view that the recent situation is more of a euro weakness story than a dollar or sterling strengthening one. Another way of gauging whether this is the case is to look at a more comprehensive measure of the movement in the euro – the trade-weighted index. On this basis, the euro has fallen by 2% since the beginning of the year, but 4% over the past three months, taking it back to levels not seen since last April. The bond market is telling us that the mountain that Greece has to climb is a very steep one, with the spread of Greece ten-year bonds over German bunds increasing by another 29bps yesterday, and is now approaching 3%.

Ireland learned last year that the market required real action in its fiscal consolidation plan to regain its trust again. That takes time, so these concerns about Greece, and thus the euro, are unlikely to dissipate overnight. Our currency forecasts imply average rates of $1.50 and 85p for 2010."

The global economic recovery will be below trend for the next couple of years, says Nouriel Roubini, chairman at Roubini Global Economics. He tells Michael Yoshikami, president and chief investment strategist at YCMNET Advisors, CNBC's Martin Soong and Amanda Drury the weakening of the economy is due to the labour market and the credit crunch:

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