Proponents of breaking up the big banks found themselves a very unlikely ally today, Sandy Weill. He is the former CEO and Chairman of Citigroup, one of the conglomerates once deemed "too big to fail." More importantly, Weill is considered to have had one of the biggest hands in repealing Glass Steagall in 1999.
Let's start with the facts. Glass-Steagall refers to the Banking Act of 1933. It essentially protected those who deposited their money in a bank from getting hit by a failing risky bet by a securities firm. Essentially, Bank of America wouldn't be allowed to take your savings and invest it into their investment banking unit. When Glass Stegall was repealed you saw the creation of mega banks that had both a consumer bank arm and an investment banking arm. This allowed banks to muddle the investments they made on securities — like the ill-fated mortgage backed securities — and the bank deposits made by main street. I think we all now know how this worked out...
On Wednesday, Weill told CNBC’s Squawk Box, "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."
Now he tells us. Better late than never?
Weill isn’t the only former banking big wig to call for a breakup of the big banks. Weill now joins a chorus of former bank execs, John Reed and Dick Parsons from Citigroup and Philip Purcell from Morgan Stanley. We shall see if anyone in Washington is listening.