The Interviews - Experts Address Recent Fraud Headlines. This collection of interviews offers analysis of recent financial fraud events and cases.
Posted on 31st Jul 2012 @ 12:05 PM
Community bankers are tickled pink. Sandy Weill’s stunning about-face on CNBC’s Squawk Box has re-energized calls for breaking up the nation’s largest banks.
“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,” the former Citigroup chairman and CEO said.
Was that the same Sandy Weill who was a key player behind the development of the financial supermarket model? In 1998, as CEO of Travelers Group, Weill and Citicorp CEO John Reed merged their companies to form Citigroup. The merger pressured Congress to pass the Gramm-Leach-Bliley Act, which overturned the Glass-Steagall Act’s separation of commercial banks from securities companies.
Weill now says the financial supermarket model was right for that time, but the world has changed and it’s not right anymore.
Weill’s remarks were music to the ears of community bankers. Cam Fine, president and CEO of the Independent Community Bankers of America, was happy to welcome Weill onboard.
“There is a growing chorus of support for downsizing too-big-to-fail financial institutions, which enjoy implicit government support and continually put our nation’s taxpayers at risk. Splitting up these systemically risky financial firms will help restore discipline to the financial markets and prevent future crises, which would have a devastating impact on community banks and the communities they serve,” Fine said.
“Policymakers should examine the appropriate means to break up the largest and riskiest financial institutions to ensure they never again put the nation’s financial system, taxpayers, and the economy in jeopardy. The risky financial practices of too-big-to-fail financial firms have had a negative impact on Main Street America. Their dangerous behavior has also led to a heavy and growing regulatory burden on community banks, which will continue so long as the nation’s taxpayers are at risk.”
Brown: “Too Big to Manage and Too Big to Regulate”
On Capitol Hill, House members of both parties wasted no time in asking Treasury Secretary Tim Geithner about Weill’s 180. “Isn’t it time to have a discussion and a debate about the reinstatement of Glass-Steagall?” Rep. Walter Jones (R-NC) asked. Geithner didn’t slam the door on the idea, but suggested that the Dodd-Frank Act should be given a chance to work.
That may not be good enough for Sen. Sherrod Brown (D-OH), who has introduced legislation (the SAFE Banking Act of 2012) that would impose strict caps on big banks. In a letter to Geithner, Brown pointed to Barclay’s failure to properly oversee the LIBOR reporting process, as well as massive trading losses by U.S. banks as reasons why the Treasury Department should increase its oversight of trillion-dollar Wall Street institutions.
“With example after example of Wall Street fraud and abuse, it’s clear that the public has lost faith in the financial system,” Brown said. “Wall Street’s behavior shows what more and more financial experts are beginning to acknowledge – these trillion-dollar megabanks are too big to manage and too big to regulate.”
Brown asked Geithner, “Do you agree with me, or do you believe that regulators are capable of overseeing trillion-dollar institutions with many different lines of business and thousands of diverse subsidiaries spread across many countries and continents?”
Brown added, “Unchecked Wall Street megabanks continue to dominate our financial landscape—threatening the stability of our nation’s families and small businesses.”
Dodd: “Weill Wrong”
Former Sen. Chris Dodd, on CNBC the following day, said forcing all big banks to downsize was too simplistic. He likened Weill’s remarks to Paul Bunyan becoming an ecologist, and emphasized that the Dodd-Frank Act “allows for that Draconian step to be taken if necessary, not just with banks but with institutions that pose substantial risk to the country.”
Dodd also conceded that some changes to his name-sake legislation will absolutely be appropriate. “We did not write the Ten Commandments,” he quipped.
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