Sunday, August 31, 2014
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Who (else) wants to break up the big banks?

Some impressive names are behind a return to the Glass-Steagall rules separating commercial banking from casino-style investment banking.

Who (else) wants to break up the big banks?

My colleague Joe DiStefano, writing about Sandy Weill's newfound appreciation for the Glass-Steagall Act's rules that separated staid, old consumer and commercial banking from the casino-style world of investment banking, skewers the former Citigroup CEO for his hypocrisy. Like other bankers who lobbied for the 1999 repeal, Weill made a fortune from the Citi colossus before it nearly collapsed during the 2008 financial crisis - and helped collapse an economy weighted down by too-big-to-fail megabanks. As DiStefano notes, no one is volunteering to give the fortunes back.

But it's fascinating to consider the company Weill now keeps, which you can now do thanks to American Banker's great slide show, "Who Else Wants to Break Up the Big Banks."  The Banker's slide show illustrates more than a dozen politicians, regulators and ex-bankers who have called, one way or another, for rolling back the repeal.  

Among them:

Phil Purcell, former chief executive of Morgan Stanley: "Breaking these companies into separate businesses would double to triple the shareholder value of each institution. …The financial giants have mixed profitable and client-centric services with the higher risk, more volatile and opaque investment banking and trading."

John Reed, former chairman of Citigroup: "It wasn't that there was one or two or institutions that, you know, got carried away and did stupid things. It was, we all did… And then the whole system came down."

David Komansky, former chief executive of Merrill Lynch: "Unfortunately, I was one of the people who led the charge to try to get Glass-Steagall repealed. ... I regret those activities and wish we hadn't done that."

Mervyn King, Governor of the Bank of England: "It is hard to see how the existence of institutions that are 'too important to fail' is consistent with their being in the private sector. Encouraging banks to take risks that result in large dividend and remuneration payouts when things go well, and losses for taxpayers when they don't, distorts the allocation of resources and management of risk."

Throw in a few politicians, a couple regional Fed presidents, and the outspoken Simon Johnson, former chief economist at the International Monetary Fund, and you have an impressive list. But notably absent are any current bankers - the lone exception being Camden Fine, president of the Independent Community Bankers of America, a group that doesn't gamble with depositors' money (and has suffered more than its share of managed failures since 2008).

Which goes to the heart of the problem.  The leaders of the finance industry today are busy as ever lobbying Washington for what Wall Street wants. This time around, they're trying to undermine many of the Dodd-Frank reforms, which aimed to stop mega-banks from taking mega-risks with an implicit taxpayer guarantee through mechanisms such as the Volcker Rule.

There's a reason that even a Democratic-dominated Congress didn't try to break them up and roll back the Glass-Steagall repeal in 2010, and it's called the power of money. It's easy to say, "just break them up." Let's hope it doesn't take another total collapse to achieve that eminently reasonable goal.

Jeff Gelles Inquirer Business Columnist
About this blog

Jeff Gelles, who writes the Inquirer's weekly Consumer 14.0 and Tech Life columns, takes a broad look at the marketplace of goods, services, and ideas.

Reach Jeff at jgelles@phillynews.com.

Jeff Gelles Inquirer Business Columnist
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