US President Barack Obama's initiative to carry out the most sweeping reform of the financial sector since the economic crisis has drawn both applauses and criticisms across the world.

In his keynote speech at the 40th World Economic Forum Annual meeting at Davos, Switzerland on Wednesday, French President Nicolas Sarkozy backed the Obama proposal, which included a plan to limit the size of banks and restrict proprietary trading.

He said the last two years of worldwide economic malaise were a globalization crisis and that the world's financial system was in need of a moral compass.

Obama's plan could prevent another financial crisis, the head of the Organization for Economic Cooperation and Development (OECD) said Tuesday.

The proposal "could help to avoid a new financial crisis by resolving some major risk inherent to the current financial system," said OECD secretary general Angel Gurria.

Gurria added that details and a timeline must be hammered out before the plan can be implemented.

Bank of England governor Mervyn King said he supports "radical" banking reform.

"I don't think anybody is either ahead or behind the curve, but what the proposals announced last week did, I think, was to make very clear that radical reform is on the table and that is the most important thing," King said, adding that a system was needed to keep taxpayers from having to bail out banks in the future.

An editorial in the Mainichi Shinbun, one of Japan's largest newspapers, also expressed interest in Obama's proposals last week.

But bank heads have slammed the proposal and some experts were predicting the plan would flop in Washington and remain a pipedream in the global arena.

"I've seen no evidence that suggests shrinking banks is the answer," Barclays President Bob Diamond told CNN. "If you step back and say large is bad, and we move to narrow banking, the impact of that on banks, on global trade, and on the global economy would be very negative."

A survey by PricewaterhouseCoopers reflected that 60 percent of CEOs are "extremely concerned" about being over regulated by government.

In the United States, critics bashed Obama's proposals as being thin on details and said capping the size of financial institutions would still not reduce the potential for a financial meltdown.

The administration's earlier approach of higher liquidity requirements is a better plan than forcing institutions to become smaller, some critics said.

Others pointed out that the president has not specified exactly what the right size of banks should be. And it remains unknown how large a financial institution would have to become to spark a financial crisis if it fails.

Some analysts are skeptical about the possible adoption of Obama's proposal in Europe, Japan or elsewhere. Andy Busch, a global currency and public policy strategist at BMO Capital Markets, said stripping proprietary trading from banks is a difficult process and it remains unclear whether that would boost stability.

Busch also doubts whether the legislation will even pass Congress, he said.

He said that China's plan to boost reserve requirements makes more sense and that the United States may see similar regulation.

Michele Gambera, chief economist at Ibbotson Associates, said "it's logical to limit size," but added that big is not bad, banks can become unwieldy when they reach a certain critical mass.

The problem with large banks, especially in the case of mergers and acquisitions is that they often can not afford to invest in computer systems that can talk to each other every second of every day, he said.

He contended governments such as France, Germany and Japan like to have their national banking champions and allow such large financial institutions to grow in spite of risk. And that sentiment could cause the current buzz over Obama's plan to fade.

(Xinhua News Agency February 1, 2010)