Policy Pivot on Banks Followed Months of Wrangling

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Former Fed Chairman Volcker, With Backing From Biden and Axelrod, Helped Shape Obama's Tougher Stance on Banks

White House officials said the president called a meeting of his entire economic team to press for additional proposals. But its members were at odds: Messrs. Geithner and Summers argued that proprietary trading was a problem but not a central cause of the financial crisis, according to an official familiar with the talks. Mr. Volcker saw proprietary trading as a fundamental risk.

In December, Mr. Obama decided he wanted to be on what he saw as "the right side" of the debate, according to an administration official. He asked his team to bring him specific proposals to limit the size of financial institutions and halt proprietary trading. Spurring their thinking: Goldman Sachs had sought the protection of the Federal Reserve during the financial crisis, and was now making big profits from its own trading, in part because it benefited from the explicit backing of the U.S.

It was a big step for the administration. White House economists argued that transparency and disclosure alone could shape Wall Street behavior.

But Mr. Obama was now on Mr. Volcker's side. His rhetoric began shifting against Wall Street in December, when he blasted "fat cat" bankers during a television interview. Last month, the president accompanied a proposed fee on big banks to recoup Wall Street bailout funds with a fresh rhetorical blast...

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