called for a break-up of large banks in an astonishing about-face from one of the architects of the modern financial conglomerate.
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“What we should probably do is go and split up investment banking from banking, 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 too big to fail,” Mr Weill told CNBC.
The 79-year-old’s comments come 13 years after the repeal of Glass-Steagall, the law passed after the Great Depression, that had forced a separation between traditional banking and riskier activity. Mr Weill championed that repeal as he created Citigroup through a series of acquisitions.
Carolyn Maloney, a senior Democrat on the House financial services committee, said during a hearing with Tim Geithner, Treasury secretary, that Mr Weill’s pronouncement was “absolutely huge”.
Ms Maloney asked Mr Geithner to detail in writing how the 2008 financial crisis could have been different had investment banks been separated from retail lenders.
There is a significant movement to go back to a simpler delineation of roles, a move that would be devastating for JPMorgan Chase, Bank of America and Mr Weill’s old company Citigroup.
In an interview with the Financial Times, Tom Hoenig, director of the Federal Deposit Insurance Corporation, called for a “richer, deeper Glass-Steagall”.
Speaking before Mr Weill’s remarks, he said proposals such as the US Volcker Rule, which bans banks from proprietary trading, and the UK’s Vickers’ commission, which proposed forcing banks to ringfence their retail and small business operations, fell short.
“I find that over time fences are jumped, firewalls are drilled through and you end up with bad outcomes,” he said.
Earlier this week, Sarah Bloom Raskin, a Federal Reserve governor, said in a speech that the Volcker Rule was insufficient and she had voted against its adoption. “I was concerned that, as proposed, the guard rails were too broad and would allow banks to be able to go too far off the road,” she said.
Ironically, Mr Weill had, during the 1990s, pressed lawmakers and regulators to strip away the regulation that had prevented mergers across different types of financial businesses.
In 1998, after a series of acquisitions, including Salomon Brothers, the investment bank, and Smith Barney, the retail brokerage, Mr Weill combined his Travelers Group with Citicorp to create a sprawling conglomerate that became Citigroup. The repeal of Glass-Steagall allowed the new group to stay intact.
Citigroup later became one of the biggest casualities of the financial crisis, requiring a $45bn bail-out. Under chief executive Vikram Pandit, with financial supermarkets now out of fashion, the bank has been trying to get smaller, announcing the sale of billions of dollars of assets.
Mr Weill, though, declined to say that he had been wrong to push for the ability to establish a “financial supermarket”. “I think the earlier model was right for that time,” he said. “I think the world changed with the collapse of the real estate market and the housing bubble.”
Mr Weill’s comments add to the headaches of Jamie Dimon, his former protégé at Citi, who, as chief executive of JPMorgan, now runs the US’s biggest bank by assets, which combines a myriad of business lines, from fixed income trading to credit cards.
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