CITIGROUP’S FORMER chief executive Sandy Weill called for a break-up of large banks in an astonishing about-face from one of the architects of the modern financial conglomerate.
The intervention of Mr Weill – who remains a chairman emeritus of Citi – adds to a growing chorus of regulators, politicians and bankers calling for a return to the separation of investment banking from commercial banking that existed in the US before the 1990s.
“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,” Mr Weill told CNBC.
The 79-year-old’s comments come 13 years after the repeal of the Glass-Steagall Act, the law passed after the Great Depression, that had forced a separation between traditional banking and riskier activity.
Mr Weill championed that repeal as he created Citigroup through a series of acquisitions.
Carolyn Maloney, a senior Democrat on the US House of Representatives financial services committee, said during a hearing with Tim Geithner, treasury secretary, that Mr Weill’s pronouncement was “absolutely huge”.
Ms Maloney asked Mr Geithner to detail in writing how the 2008 financial crisis could have been different had investment banks been separated from retail lenders.
There is a significant movement to go back to a simpler delineation of roles, a move that would be devastating for JPMorgan Chase, Bank of America and Mr Weill’s old company, Citigroup.
Ironically, Mr Weill had, during the 1990s, pressed lawmakers and regulators to strip away the regulation that had prevented mergers across different types of financial businesses.
In 1998, after a series of acquisitions, including Salomon Brothers, the investment bank, and Smith Barney, the retail brokerage, Mr Weill combined his Travelers Group with Citicorp to create a sprawling conglomerate that became Citigroup.
The repeal of Glass-Steagall allowed the new group to stay intact.
Citigroup later became one of the biggest casualties of the financial crisis, requiring a $45 billion (€37 billion) bail-out.
Under chief executive Vikram Pandit, with financial supermarkets now out of fashion, the bank has been trying to get smaller, announcing the sale of billions of dollars of assets.
Mr Weill, though, declined to say that he had been wrong to push for the ability to establish a “financial supermarket”.
“I think the earlier model was right for that time,” he said.
“I think the world changed with the collapse of the real estate market and the housing bubble.”
