Of Special Interest
27th July 2012
Sandy Weill : Bring back Glass Steagall
Sandy Weill suggested in a television interview that investment banking should be split from retail banking. The news has caused a stir because he is often described as the man who persuaded the US government to repeal the Glass-Steagall Act, which previously enforced this split.
In 1998 Weill who had built Travelers Group into a major group wanted to merge it with Citicorp in order to form Citigroup. To achieve this he is credited with persuading the government to repeal Glass Steagall. Weill argued in the interview that the argument for a split now was not because the action in the 1990s was wrong but instead due to the change in the global banking markets since that time.
Citigroup eventually received around $476bn of state aid, though this occurred long after Weill had left the bank. It was the recent misstep of JPMorgan Chase, that reinforced the resolve of the US government to introduce tough new banking regulation after considerable wavering on the subject. JPMorgan Chase is run by Jamie Dimon who was the favoured lieutenant of Weill at the time of the Travellers / Citi merger. The Volcker rule bans major principle trading by deposit taking banks except in special circumstances.
The Volcker rule has evolved from a simple idea to a complex rule taking 300 pages to explain the rules. Many feel this will be too complex to work effectively leading to calls for the more simple idea of Glass Steagall to be reintroduced.