Who would have expected this reaction?
The head of the American Bankers Association is disappointed and dismayed by the about-face Citigroup chairman emeritus Sandy Weill has done on breaking up the nation’s big banks.
Push the pause button on such thinking, Frank Keating, ABA president & CEO, urges.
Weill, often described as godfather to the too-big-to-fail movement, announced on CNBC a couple days ago that he now supports separating investment banks from commercial banks.
One pundit likened Weill’s reversal to Johnny Appleseed waking up one morning to complain about having apples everywhere.
If Keating appreciated the irony in Weill’s new stance, he wasn’t letting on. In a statement Friday morning, Keating said: “I’m dismayed by his comments supporting the breakup of our country’s largest banks.”
Following Weill’s “misguided proposal” would “damage our still recovering economy,” Keating said.
Reducing the size of our largest banks would severely diminish their capacity to serve America’s largest businesses, he added.
As Keating sees it, such a move would drive corporations to foreign competitors that would quickly move to meet their financial needs. “Financing would gravitate more heavily to the lightly regulated ‘shadow’ banking system and our country’s status as the world’s premier financial center would be in grave peril.
Some proponents of banking reform have called for the return of Glass-Steagall, a Depression era ban on the merging of commercial banking and investment banking lifted during the Clinton administration. Glass-Steagall would not have prevented the financial crisis, which the GAO found was caused by exotic securities that fueled massive amounts of subprime mortgages, Keating insisted. “Policy decisions should be based on reason and facts, not hysteria and catchy sound bites.”
Glass-Steagall’s repeal enabled Weill to create the financial giant Citigroup by combining Traveler’s Insurance and Citibank. That makes him the godfather of the very thing he now wants disposed of as if it were Fredo Corleone.
Some lovers of the “Godfather” series of movies think the problematic Fredo should have been dispatched of much earlier. Likewise, many who have assessed the casualties and causes of the U.S. banking crisis believe Weill is a bit too late in realizing what went wrong.