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Tags: Citi | Weill | Big | Banks

Former Citigroup Chairman Weill: Break Up the Big Banks

Wednesday, 25 July 2012 08:29 AM

Big banks need to be broken up, with investment banks operating under one roof and commercial banks under another, said Sanford "Sandy" Weill, former chairman and CEO of Citigroup Inc., an iconic big bank.

Too much leverage and not enough transparency make such a move necessary.

"I think 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 going to be too big to fail," Weill told CNBC.

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"They would be entities on their own like they were 25 years ago," he said.

The repeal of the Glass-Steagall Act in the 1990s allowed big financial institutions to provide investment banking and commercial banking services under one roof.

Supporters say such massive institutions allow banks to offer clients products and services around an increasingly global, integrated and complicated economy.

Critics say the banks are too big to manage, as evidenced by JPMorgan's recent multi-billion dollar trading loss and add they can become too big to fail, meaning the government must step in and bail them out, as letting them go under due to bad decisions could derail the economy.

"Our world hates bankers. Our world says you can't make a mistake and that if you make a mistake the taxpayers are going to come down on you," Weill said.

Regional banks, meanwhile, are turning profits by providing loans to businesses and individuals, which bucks the argument that running a commercial bank alone won't be profitable.

"This is all the regional banks do and everybody says buy the regional banks," Weill said

Furthermore, the reach and richness of U.S. capital markets will keep the financial sector competitive in the global market place should big banks be broken up.

"The capital markets are adequate to do that over time and with confidence coming back again and we should be able to attract the bright young minds again to this industry," Weill said.

Calls to break up big banks are growing for both the good of the economy and for investors, as the parts may be more valuable than the whole.

"There’s no alternative but to resurrect Glass-Steagall as a whole. Even then, the biggest banks are still too big to fail or to regulate," Robert Reich, former Labor Secretary under President Bill Clinton, wrote in a recent blog.

Others agree, pointing out that big banks haven't created as much value for shareholders than once thought.

"Whatever economies the megabanks achieve from their size are more than offset by the challenges in managing trillion-dollar institutions that are into trading, market making, investment banking, derivatives, and insurance, in addition to the core business of taking deposits and making loans," Sheila Bair, former head of the Federal Deposit Insurance Corporation, wrote in a recent Fortune column.

"This is one of the reasons why, even before the crisis, their shares performed more poorly than those of the well-managed regional banks, and continue to do so."

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Wednesday, 25 July 2012 08:29 AM
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