The last thing one might expect coming from Citigroup’s founder is the contention that the investment banking sector should be split. That’s exactly what Sanford “Sandy” Weill, who played a significant role in defining the American banking conglomerate, says. Further, he says it’s the only way to keep future bailouts at bay. Weill, who’s close to 80 years old, said in an interview with CNBC,
What we should probably do is go and split up investment banking from banking and have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.
Acknowledging an ever-changing banking climate and global contribution, the approach and mindset hasn’t seen as drastic an evolution. Weill was one of the first bankers who pushed for the repeal of the Glass Steagall law, which had been in place since the Great Depression. This law required companies with a “deposit taking” classification and that were backed by government insurance to be separate from the investment banks.
Now, Weill is saying that the repeal was probably not the best option then or now. He’s not alone in that mindset, either. There’s a growing group of financial professionals who are calling for a break up of any bank that could be construed as “too big to fail”. It’s about transparency, which, if the banks can bring into its models, would would surely result in a huge step forward in regaining consumer faith.
Former Fed Chairman Alan Greenspan did his part to repeal Glass- Steagall as well. He too said the break up would make banks more profitable. Former President Clinton agrees and said the financial world has changed and that it was no longer appropriate for a modern economy.
Before taking a massive amount of bailout monies – close to $45 billion – Citigroup was viewed as one of the profitable and popular banks. By accepting the funds, many were wondering why a bank that seemed to be thriving would suddenly seek government money. By contrast, Bank of America Corp. also accepted a $45 billion bailout while JPMorgan and Wells Fargo & Co. each took $25 billion. Towards the end of 2006, Citigroup’s shares hovered around $564.10 per. By early 2009, following Lehman Brothers’ bankruptcy filing, the conglomerate’s stocks dropped to $10 each. Currently, it’s around $26 a share.
Arthur Levitt, who was Weill’s partner for years, says it was a bad decision and regrets ever supporting the bill that overturned Glass-Steagall. He then said he didn’t realize
how weak a job as regulators the Fed and Comptroller’s office were doing.
Those who support the break-up of these banks say there’s nothing to gain from “complex banks”. At least one politician is taking steps to push through legislation that would significantly cap the size of the country’s biggest banks. Unfortunately, the parties are divided over this latest proposition.
Rep. Brad Miller, a North Carolina Democrat recently introduced legislation that would cap the size of the biggest banks, but he also acknowledges he has little faith in it moving forward. He said it’s more likely the Republicans will kill it on the House of Representatives level.
Over the course of two decades, Citigroup paid Weill close to $1 billion. This included cash and stocks in his role of CEO. His work allowed the entity to grow, including the banking division, which offers credit cards, insurance and trading. Weill retired in 2006.
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Whether you agree or disagree with Weill, there’s no doubt there are benefits by forcing banks to take a more proactive approach in their efforts of avoiding another taxpayer bailout.