"Wall Street Legend Weill: Break Up the Big Banks
CNBC.com | July 25, 2012 | 08:02 AM EDT
Former Citigroup Chairman & CEO Sanford Weill, the man who invented the financial supermarket, called for the break up of big banks in an interview on CNBC Wednesday.
“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,” Weill told CNBC’s “Squawk Box.” “If they want to hedge what they’re doing with their investments, let them do it in a way that’s going to be market-to-market so they’re never going to be hit.”
He essentially called for the return of the Glass–Steagall Act, which imposed banking reforms that split banks from other financial institutions such as insurance companies.
“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, and the investment banks can do trading, they’re not subject to a Volker rule (the Volcker rule explained), they can make some mistakes, but they’ll have everything that clears with each other every single night so they can be market-to-market,” Weill said.
Weill said that by breaking up banks they would be “much” more profitable.
"This is what all the regional banks do and everybody says buy regional banks,” he said. “They'll just be bigger regional banks.”
Weill suggested that breaking up banks is the only way to rebuild the financial industry’s reputation in the wake of recent scandals.
“I want to see us be a leader, and what we’re doing now is not going to make us a leader,” he said."
Weill's statements were considered somewhat revolutionary by the hosts, and Sorkin, known for his bestselling book (and subsequent HBO movie) Too Big to Fail, about the financial crisis, stated he was "speechless".
It should be noted that one of the stated "goals" of at least one of the Occupy movement groups is the reinstatement of the Glass-Steagall Act.
I have some thoughts of my own to add to this:
I disagree that we should have "bigger regional banks". I think that:
1) geographic market operating restrictions should be placed on banks. There should not, for example, be a Bank of America that operates in all 50 states; BofA and the other huge national mega-banks (like Chase and Wells Fargo) should be broken up into separate smaller regional banks and,
2) at least 30 percent of these banks should be sold and/or spun off into credit unions. The credit union movement has always been stymied and demonized by the banking industry and needs to be protected and given the means to grow, flourish, and be a viable alternative for people to take care of their financial needs.
