Almost exactly ten years ago, on Oct. 22, 1999, the Clinton administration reached a deal with Republican Senator Phil Gramm, the chairman of the Senate Banking Committee, to effectively repeal the separation between commercial and investment activities mandated by the New Deal-era legislation, Glass-Steagall. Upon hearing the news, John Reed and Sanford I. Weill, the co-CEOs of Citigroup, issued “a statement congratulating Congress and President Clinton, including 19 administration officials and lawmakers by name.”
Reed and Weill were naturally pleased, because without the repeal of Glass-Steagall, the mega-merger orchestrated a year earlier between Reed’s Citicorp and Weill’s Travelers Group would technically have been illegal.
Ten years later, after surveying the wreckage wreaked upon the global economy by “too-big-too-fail” financial institutions that might have been kept in check had Glass-Steagall continued as the law of the land, John Reed wants a do-over.
In a letter to the editor commenting on an New York Times article on Paul Volcker, Reed wrote:
To the Editor: Re “Volcker’s Voice, Often Heeded, Fails to Sell a Bank Strategy” (front page, Oct. 21):
As another older banker and one who has experienced both the pre- and post-Glass-Steagall world, I would agree with Paul A. Volcker (and also Mervyn King, governor of the Bank of England) that some kind of separation between institutions that deal primarily in the capital markets and those involved in more traditional deposit-taking and working-capital finance makes sense.
This, in conjunction with more demanding capital requirements, would go a long way toward building a more robust financial sector.
John S. Reed, New York, Oct. 21, 2009
The writer is retired chairman of Citigroup.
Barry Ritholtz at The Big Picture says “this is pretty amazing.” Noam Scheiber says, a la Simon Johnson, “maybe the consensus on [breaking up the banks] really is starting to change.”
Everybody loves a whopping big “oops,” and this appears to be one. But could there be another explanation? A look back at the history of the Citigroup merger suggests that Sanford Weill was the real driving force who made it happen. Weill, by some accounts, then pushed John Reed out of power. Maybe Reed is still mad, and attempting to disassociate himself fromresponsibility for the entire sorry saga.
When Sanford I. Weill comes out in favor of bringing back Glass-Steagall, then we’ll know that the consensus really has changed.