Sandy Weill U-turn fuels big bank breakup fire

July 25, 2012

By Agnes T. Crane
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Sanford Weill is the last person you’d expect to champion the reinstatement of Glass-Steagall. After all, Citigroup was not just his creation – the banking behemoth killed off the Depression-era legislation that kept investment and commercial banking separate. But on Wednesday he called for breaking up such conjoined firms, joining a long list of critics across the political spectrum who have become frustrated with financial reform. 

In his interview on CNBC, Weill complained that the combination of the Dodd-Frank Act’s tangle of regulation and populist outrage at big banks has hobbled the industry. His suggestion: hive off investment banking. This is rich coming from the man who hung a portrait with the words “The Shatterer of Glass-Steagall” in his office. Nor did he shoulder any of the blame for creating a mega-bank that stumbled from crisis to crisis before sucking down a $45 billion taxpayer bailout. 

Such chutzpah may make his message easy to dismiss. But the point has been resonating for a while across the political spectrum. For critics like Paul Krugman, smaller financial institutions would wield far less political influence. Others lament that the financial reforms of the Dodd-Frank Act don’t do enough to protect the financial system from another calamity. Meanwhile, some conservatives are starting to think that a more radical split might be preferable to the mess of new regulations coming down the pike, such as the Volcker Rule. 

Revoking Glass-Steagall may not have caused the financial crisis. After all, the rot started with specialist mortgage firms like New Century. And commercial lenders like Countrywide and Washington Mutual failed as well as pure investment banks Bear Stearns and Lehman Brothers. But nixing it did help create monstrously large institutions that appear impossible to regulate, manage and, in recent years, value. 

Breaking up banks won’t be easy. There’s the question of funding standalone investment banks and disentangling the wiring that fuses complex operations together, just for starters. But comments from a convert like Weill, as ironic as they may be, give the break-up-the banks rallying cry more bite.

Comments

These big boys ARE way to co-mingled and they know it. That’s how they can play the games they do. From the way they leverage to they way they play the spreads, they’ve got the game down good. But since they somehow have managed to play the political card and buy off some of the so called people’s elected officials, it will take a very strong and vocal group of leaders from the industry to push for disentanglement of the big boys. If people don’t see that having a few very large global powerhouses isn’t really such a great thing, well, wow, get your heads out of the sand. I am all for private enterprise and corporations making money. Pay your dang bankers what you want, i could care less, but when there’s a clear trend in how domination plays out in society both here and abroad, then i do start to care about the size and scope of their operations. I find it a little weird that the federal government limits the amount of EE savings bonds I can purchase in a year, but the guidelines on how much in certain open positions that can be held or purchased by big players is unlimited. YOur telling me that I’m more of a risk to society by overbuying low yield us government bonds than the shadow investors playing with futures and commodities? Oooh, you must all be terrified of me, huh? Big, scary government savings bond buyer on the loose. Watch out!

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