City 'logjam' on floats, takeovers and loans

That was the view today of one top banker, who warned of "logjam" in the City in the wake of the Obama plans.

Until banks are certain what the effect the reforms will have on their business they will be extremely reluctant to risk any of their capital, even to aid long-standing and solvent clients.

Prop trading of the kind the US is looking to curtail can be vital parts of investment banking transactions done on behalf of large companies. The banks' role is to ensure a market exists for certain securities, sometimes by putting their own money on the line to kick-start trading if necessary.

If this is banned, it would make getting floats or rights issues away much more difficult, said the banker, speaking in private.

Others doubt this apocalyptic vision will come to pass.

A source at another investment bank said: "We will look to push through things we've already got on the table ahead of major reforms. If we've committed to do something, we will do it. I certainly can't see us putting on the brakes. It will be business as usual."

One trade body spokesman said banks will be less willing to loan money: "This will affect people's preparedness to lend and it comes just as central banks are withdrawing liquidity."