Imagine if Microsoft founder Bill Gates said that the market dominance of Windows was a threat to computer innovation. Or if McDonald's magnate Ray Croc said that fast food restaurants had grown too ubiquitous and were contributing to American obesity.
That's roughly equivalent to what happened this week in the banking industry. Sandy Weill, former CEO and architect of what many consider the prototype for Too Big to Fail, Citigroup, said that the world's biggest banks should be broken up to avoid future bailouts.
From Jed Horowitz and David Henry of Reuters:
Sanford "Sandy" Weill, the tycoon who built financial conglomerate Citigroup (C) into a massive U.S. commercial and investment bank, said it is time to split up the biggest banks so they can go back to growing again.
The comments were an astonishing about-face for Weill, who in the late 1990s smashed the U.S. law known as "Glass-Steagall" that divided commercial and investment banking. Riskier investment banking activities should be separated from safer commercial banking, and the government should only have to insure the latter, Weill said.
"The world changes, and the world that we live in is different from the one that we lived in 10 years ago," Weill said in an interview with television network CNBC.
Other long-time Wall Street players were quick to applaud Weill. Said Arthur Levitt, Weill's former business partner in the 1960s and a chairman of the Securities Exchange Commission in the 1990s: "It's a very difficult statement for him to make since he was largely responsible for the repeal of Glass-Steagall, and he's absolutely right. This is a very significant statement."
When it comes to believing the big banks should be broken up, Weill joins some pretty respectable company. Dallas Fed president Richard Fisher and FDIC board member Thomas Hoenig have already expressed support for reinstating Glass-Steagall.
Personally, I don't see it happening. Collectively, TBTF banks have a ton of political clout in both parties. If you don't believe me, go to C-SPAN.com and watch the Jamie Dimon hearings from last month.
Breaking up the big banks is a much more radical step than the Volcker rule, which simply banned banks that accept deposits from betting their own money in financial markets. As you may recall, that particular part of the Dodd-Frank financial reform law nearly died in Congress, and thanks to heavy lobbying from the financial industry, now has more loopholes than a crocheted muumuu.
A battle over reinstating Glass-Steagall would likely be much more contentious, seeing as passing the law would mean many large national banks would cease to exist as we know them.
What do you think? Should the big banks be broken up? Will it ever happen?
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