Sanford Weill is the last person you’d expect to champion the reinstatement of Glass-Steagall. After all, Citigroup was not just his creation - the banking behemoth killed off the Depression-era legislation that kept investment and commercial banking separate. But on Wednesday he called for breaking up such conjoined firms, joining a long list of critics across the political spectrum who have become frustrated with financial reform.
In his interview on CNBC, Weill complained that the combination of the Dodd-Frank Act’s tangle of regulation and populist outrage at big banks has hobbled the industry. His suggestion: hive off investment banking. This is rich coming from the man who hung a portrait with the words “The Shatterer of Glass-Steagall” in his office. Nor did he shoulder any of the blame for creating a mega-bank that stumbled from crisis to crisis before sucking down a $45 billion taxpayer bailout.
Such chutzpah may make his message easy to dismiss. But the point has been resonating for a while across the political spectrum. For critics like Paul Krugman, smaller financial institutions would wield far less political influence. Others lament that the financial reforms of the Dodd-Frank Act don’t do enough to protect the financial system from another calamity. Meanwhile, some conservatives are starting to think that a more radical split might be preferable to the mess of new regulations coming down the pike, such as the Volcker Rule.
Revoking Glass-Steagall may not have caused the financial crisis. After all, the rot started with specialist mortgage firms like New Century. And commercial lenders like Countrywide and Washington Mutual failed as well as pure investment banks Bear Stearns and Lehman Brothers. But nixing it did help create monstrously large institutions that appear impossible to regulate, manage and, in recent years, value.
Breaking up banks won’t be easy. There’s the question of funding standalone investment banks and disentangling the wiring that fuses complex operations together, just for starters. But comments from a convert like Weill, as ironic as they may be, give the break-up-the banks rallying cry more bite.