When Sanford Weill speaks, people listen. And what Sandy Weill, once arguably the nation's most powerful banker, is saying is that the biggest banks should be broken up.
"What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial 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
This is a stunning about-face. Weill was one of the most forceful advocates of repeal of the 1933 Glass-Steagall Act that called for strict separation between investment banking, with its high-risk, high-reward trades and exotic financial products, and the more mundane world of depository institutions, whose principal role is to safeguard their customers' money.
However, under pressure from Wall Street, Congress chipped away at the law until its last major restriction, on banks getting into insurance underwriting, was removed in 1999. By then, Weill's Citicorp had merged with Travelers to create the $70 billion behemoth, Citigroup. Weill retired as Citigroup chairman in 2006, before the great 2008 Wall Street meltdown.
But his megabank still needed a $45 billion taxpayer bailout.
Whether the lawmakers act on Weill's advice depends on who's in charge. The Republicans are focused on trying to repeal the post-financial-crisis Dodd-Frank Act, which contains the much milder Volcker Rule, a ban on banks trading for their own benefit rather than their customers'.
Weill is not alone in his call for the breakup of megabanks. He has been joined by other senior bankers like former Morgan Stanley CEO Phil Purcell; former head of the FDIC Sheila Bair, and two of Weill's former top executives at Citigroup, Richard Parsons and John Reed.
Not just the people, but Congress, should listen.
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