Total Pageviews

Weill Calls for Splitting Up Big Banks

They were words no one ever expected Sanford I. Weill - the man who helped usher in the age of the  financial supermarket - to utter.

“What we should probably do is go and split up investment banking from banking,” Mr. Weill, former Citigroup chief executive, told CNBC's “Squawk Box” on Wednesday. “Have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that's not going to risk the taxpayer dollars, that's not going to be too big to fail.”

His words were essentially a call for a return to Glass-Steagall, the financial regulation that for decades separated commercial banking from investment banking in an effort to keep the financial world safer and easier to regulate. And it was an admission rich with irony.

For it was Mr. Weill, the empire builder who progressively turned an insignificant Baltimore-based lender into the towering financial services provider named Travelers and who erased G lass-Steagall with the $70 billion union of his firm with Citicorp in 1998.

While Glass-Steagall had already been worn away in large parts by then, thanks to various loopholes that firms like Citicorp and the Chase Manhattan Bank had exploited over the years, it was Mr. Weill's deal and furious lobbying that finally broke the rule apart. The Gramm-Leach-Bliley Act of 1999 formally blessed the creation of the universal banking model, but by then it was almost a formality.

Mr. Weill said on Wednesday that Glass-Steagall had essentially dissipated by the mid-1980s; the only remaining regulation he sought to erode was a prohibition on banks conducting insurance underwriting.

Still, for years he proudly boasted of his accomplishment, which fulfilled his long-held dream of creating a far-flung financial empire. Among his most notable possessions was a huge wooden plaque bearing his portrait and a list of his accomplishments.

One of them read simply, “The Shatterer of Glass-Steagall.”

That was before Citigroup proved to be too unwieldy to manage, hunched over by the weight of disparate businesses with little in common and with byzantine corporate structures that made running the behemoth incredibly difficult. And that was before the financial crisis of 2008 laid low the American banking titans, with Citigroup needing bailouts by the federal government to stay alive, giving rise to the phrase “too big to fail.”

John S. Reed, who was Citicorp's chief executive at the time of the 1998 merger, has already apologized for his role in midwifing the birth of the banking supermarket. But Mr. Weill had not uttered anything similar until now.

“I'm suggesting that they be broken up so that the taxpayer will never be at risk, the depositors won't be at risk, the leverage of the banks will be something reasonable,” he told CNBC on Wednesday.

He added that by making banks smaller, they could become more pro fitable.

Mr. Weill's admissions rippled across the Internet on Wednesday. Here is what Dan Alpert, a founding partner of the investment bank Westwood Capital, wrote on Twitter:

And here is what Ian Bremmer, head of the Eurasia Group research and consulting firm, wrote:

Some commentators were a bit more cynical, however. The Epicurean Dealmaker deemed the Damascene moment more of an opportunity by Mr. Weill to needle his once-estranged junior partner, Jamie Dimon - who now runs the enormous firm known as JPMorgan Chase.

It's very simple. Sandy Weill promoting the return of Glass Steagall is just another way to take a dig at his former protege Jamie Dimon.

- Epicurean Dealmaker (@EpicureanDeal) 25 Jul 12