The Bankwatch

Tracking the consumer evolution of financial services

Weill says Glass-Steagall repeal was a mistake

A telling comment from one of the original architects and promoters of the original financial services holding company that could only exist with the repeal of Glass-Steagall.

Former Citigroup CEO Weill Says Banks Should Be Broken Up | Bloomberg

“What we should probably do is go and split up investment banking from banking,” Weill, 79, said yesterday in a CNBC interview. “Have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.”

He goes on to say

“We can have size and scale but it doesn’t have to be connected to a deposit-taking institution,” Weill said in the interview. “Have banks be deposit-takers, have banks make commercial loans and real estate loans.”

The promise that this could have the effect of keeping risky banking activity such as sub prime mortgage ABCP away from ‘regular’ deposit taking institutions.

However its worth noting that when Glass-Steagall was implemented in 1933 financial services were much simpler than today.  Re-implementing Glass-Steagall sounds appealing but in and of itself it would not be enough to eliminate the potential for bank bailouts in the event of another 2008. 

In order to protect banks and ordinary peoples deposits, a very clear line would need to be laid down to ensure that the big risks that were taken prior to 2008 and that resulted in the bailouts, were not available to those ‘regular’ banks.

Written by Colin Henderson

July 26, 2012 at 23:02

Posted in Uncategorized

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